Brother's Bid for Document Imaging Business Could Pull Kodak From Brink

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Summary

If Brother Industries’ proposed acquisition of Kodak’s document imaging business proceeds, it will strengthen Brother’s image capture portfolio and help Kodak’s financial rehabilitation.

News Analysis

Event

On 15 April 2013, the print technology provider Brother Industries announced that it has entered into an agreement with Eastman Kodak to acquire part of its document imaging business for $210 million in cash. Brother would assume Kodak’s $67 million of customer prepayment liabilities. The deal is subject to U.S. Bankruptcy Court approval. If the offer is accepted, Kodak expects to complete the transaction by June 2013. Should the deal close, Kodak said that its document imaging employees — including some Rochester, N.Y.-based employees that focus on R&D — would likely join Brother.

Analysis

Kodak scanners, image-capture software and technical services could reinforce Brother's position in the small and midsize business (SMB) market and help Brother establish itself within the large enterprise segment.

However, Brother's "stalking horse" bid occurs in the context of what is, in effect, a court-supervised auction designed to obtain the maximum value for the seller. Kodak can also consider alternative bids during the period, and the deal is not guaranteed. In addition, understanding and servicing enterprise customers will represent a steep learning curve for Brother, which relies heavily on the channel for sales. Brother is a relatively new player in the business scanner market, which it entered in July 2012. Brother's current product line ranges from mobile to desktop connected to cloud services offered through a wireless LAN.

Should the transition from Brother to Kodak proceed, and the companies execute it smoothly and rapidly, enterprises that already use Kodak document imaging technology could benefit from the integration of Kodak image capture technology and Brother print and scanning technology. Acquiring Kodak's assets could enable Brother to enhance its products and services. Integrating Kodak's scanners and image-capture software with Brother's scanning and printer portfolio would give it a competitive advantage over other print providers.

The sale of Kodak's document imaging division and the potential sale of its personalized imaging business will help Kodak attain the estimated $600 million it requires to survive and attain profitability in a re-invented, more streamlined version. Since Kodak's entry into Chapter 11 bankruptcy protection in January 2012, it has sought to jettison business units and focus on commercial printing and packaging and its commercial film business, which serves the motion picture industry. The potential deal with Brother follows Kodak's sale of its digital rights management patent portfolio in December 2012 for a fraction of its estimated value.

Recommendations

Current and prospective Kodak and Brother customers:

  • Kodak Document Imaging is a healthy, profitable part of Kodak. Customers have been served without interruption during Kodak's Chapter 11 process. While it is uncertain who the eventual buyer will be this announcement shows progress toward greater certainty for the future of the division. Only consider delaying or making further or initial investments in Kodak’s Document Imaging technology if you are concerned about the uncertainty of which company will eventually buy the business.

  • When purchasing Kodak products for mission-critical uses, employ strong contract language to protect your investments.

  • Should Brother’s bid prevail, consider Brother’s ability to support and advance Kodak’s technology, as well as ways in which your project could integrate Kodak image capture technology and Brother print and scanning technology.

Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

  • "Sale of Kodak's Patent Portfolio Could Help Fund Its Reinvention" — Kodak's December 2012 sale of licensing rights to a portion of its digital imaging patent portfolio was part of the conditions Kodak had to meet to obtain financing to help its U.S. operations emerge from Chapter 11 bankruptcy. By Pete Basiliere

  • "Predicts 2013: A New Print Paradigm" — Although the Nexus of Forces will hurt printed page volumes, it offers printer providers an opportunity to move their business in a dynamic new direction. By Sharon Mcnee and others

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