Latest news out of the Big Yellow Box is that two members of Kodak's Board of Directors have resigned. According to a company spokesman, the two gave no reason for their resignations. But no reason given doesn't mean that no reason exists. That leaves us with just the tea leaves to read, to try and tell what's happening on the upper floors over at 343 State Street.

The two former directors were appointed to the Board in late 2009 as part of a financing transaction. Kodak needed money to pay some soon-to-mature debts, and the echo of the financial crisis coupled with Kodak's own weakened position meant there were few lenders willing to make the loan. Enter Kohlberg Kravis Roberts, better known as KKR, with a long history of leveraged buyouts and big business deals, most notably the takeover battle for RJR Nabisco in 1988, which was chronicled in "Barbarians at the Gate." Kodak was able to borrow what it needed (at 10% interest) and gave KKR two more things: an option to buy up to 17% of Kodak's common stock at around $5/share, and two seats on the Board of Directors. Kodak paid back the loan promptly, but the two directors remained, while the option to buy became worth less and less and, ultimately, worthless.

We have all watched over the last few months as Kodak has struggled: credit rating downgrade, desperate drawdown of credit line, sale of business units to raise cash, attempts to sell patents, a revolving door of advisors. The focus of investors is no longer on Kodak's business but on the contents of its purse: can Kodak live off cash on hand until they can sell their patents? It is increasingly likely that Kodak will end up in some kind of restructuring, probably a Chapter 11 bankruptcy filing. The departure of the two KKR directors may mean that they are leaving in advance of making an offer to buy or restructure Kodak. Though, sadly, it's more likely they don't see enough profit for their firm in doing a transaction and are walking away.

Whatever happens, this time next year it will be on our "Top Ten" list of stories for 2012.



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