Kodak Buys Creo to Wrap Up $3B Spree

Eastman Kodak Co. (KO), wrapping up a $3 billion shopping spree aimed at transforming the world's biggest film manufacturer into a digital heavyweight in photography, medical imaging and commercial printing, is buying Canada's Creo Inc. (CREO) for $980 million.

Kodak said Monday its acquisition of Vancouver-based Creo, the world's biggest maker of printer software, will modestly dilute its earnings this year but will not alter its full-year profit projections of $2.60 to $2.90 a share.

Acknowledging that its chemical-based businesses, led by silver-halide film, were in irreversible decline, Kodak launched an ambitious strategy in September 2003 to delve deeply into growth markets in the digital imaging realm.

Commercial printing "represents one of the three pillars of Kodak's digitally oriented growth strategy," said Kodak's chief executive, Daniel Carp. "The purchase of Creo strengthens that pillar, and essentially concludes the company's acquisition plan."

Kodak will pay $980 million in cash, or $16.50 per share, for all the outstanding shares of Creo, which had about $85 million of cash on its balance sheet and no debt. The deal has been approved by each company's board of directors.

Creo shares rose $1.99, or 13.9 percent, to $16.35 on the Nasdaq Stock Market (search). Kodak shares fell 5 cents to $32.65.

Creo's software manages the movement of text, graphics and images from the computer screen to the printing press.

Kodak expects Creo will add at least 5 cents a share to operating earnings in 2006 and about $700 million in sales. Creo had sales of $636 million in its 2004 fiscal year.

On Jan. 12, Kodak said it was paying $817 million for Sun Chemical Corp.'s 50 percent stake in a jointly owned commercial graphic arts business.

Acquiring all of Kodak Polychrome Graphics (search), a joint venture started in 1998, will boost Kodak's revenues by about $1.1 billion, operating profits by 8 cents a share in 2005 and expand Kodak's global distribution network for digital printing systems, the company said.

Kodak grew into a photography icon on the strength of its traditional film, paper and photofinishing businesses, but the 124 year-old company is now betting its future on filmless technology, from cameras and online photofinishing to minilabs and X-ray systems.

Digital products and services accounted for around $5.5 billion of Kodak's sales in 2004, but will vault as high as $8 billion this year. Chemical-based businesses will account for around $6.6 billion in 2005, down from $8 billion last year, Kodak predicted.

Kodak ended 2004 with $1.25 billion in cash on its balance sheet and will finance the Creo deal by issuing debt. "We have every confidence that we will have ready access to the debt markets to finance this acquisition," said Robert Brust, Kodak's chief financial officer.

In October, Creo said it was reviewing strategic alternatives, including acquisitions, alliances and the sale of all or parts of its business. In recent weeks, a dissident shareholder group that owns 5.8 percent of Creo shares sought to nominate a slate of directors at an annual meeting in February to replace the company's management team.