Bloomberg News

Kodak Investor Asks U.S. Trustee to Probe ‘Secretive’ Bid

August 21, 2012

The U.S. Trustee overseeing Eastman Kodak Co. (EKDKQ:US)’s bankruptcy was asked to probe the photography pioneer’s patent auction by a New York hedge fund, which said the “unusually secretive” bidding process wasn’t likely to benefit creditors.

Esopus Creek Value Series Fund LP, which holds Kodak’s 9.75 percent Senior Secured Notes, said press reports about two lead bidders joining forces, Apple Inc. (AAPL:US) and Google Inc. (GOOG:US), led the fund “to be concerned as to the integrity of the bidding process,” according to a letter e-mailed yesterday to Tracy Hope Davis, the U.S. trustee who supervises bankruptcies in the New York region.

Under bankruptcy law, “we note that the trustee is entitled to avoid any sale resulting from collusive bidding,” Esopus said in the letter, which was obtained by Bloomberg News. The fund cited a Wall Street Journal article on Aug. 16 titled “Kodak Auction Makes Odd Bedfellows.”

A voice-mail message seeking comment on Esopus’s letter from Davis at the U.S. Trustee’s office wasn’t immediately returned after regular business hours. Google doesn’t comment on “rumor and speculation,” said spokesman Jim Prosser.

“The auction procedures were approved by the court, which also ordered that all parties should maintain confidentiality, as we are doing,” Christopher Veronda, a spokesman for Kodak, said in an e-mail.

Kristin Huguet, an Apple spokeswoman, didn’t immediately return an e-mail seeking comment

Rochester, New York-based Kodak said Aug. 16 it was continuing an extended auction of its digital-imaging patents and may not sell them if it concludes that creditors will benefit more if it holds them.

Digital Images

The patents for sale relate to the capture, manipulation and sharing of digital images. Kodak is selling the patents to fund a turnaround after filing for bankruptcy in January, pursuing a plan to shrink the company and focus on printing more than photography. Chief Executive Officer Antonio Perez is pushing ahead with the sale amid legal fights with device makers, including Apple, over the ownership and validity of some of the patents.

The patents are collateral for a $950 million bankruptcy loan arranged by Citigroup Inc. (C:US)

In court documents, Kodak has said the patents may be worth $2.21 billion to $2.57 billion, based on an estimate by patent advisory firm 284 Partners LLC. Kodak said it has generated more than $3 billion in revenue by licensing some of the digital- imaging patents to users, including Samsung Electronics Co. (005930), LG Electronics Inc. (066570), Google Inc.’s Motorola Mobility unit and Nokia Oyj. (NOK1V)

Licensing Revenue

Kodak said in June that 20 parties had signed agreements to view confidential information ahead of potential bids. The identities of unsuccessful bidders will be kept secret under auction rules. The original deadline was Aug. 13.

Kodak filed for bankruptcy after years of burning through cash while digital photography eroded its film business. The company had spent $3.4 billion on restructuring before bankruptcy, including payouts to shed 47,000 employees since 2003, closing 13 factories that produced film, paper and chemicals, and 130 photo laboratories.

The bankruptcy case is In re Eastman Kodak Co., 12-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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