Kodak says it will sell some units

May 04, 1994|By New York Times News Service

Largely abandoning forays into pharmaceuticals, household products and medical tests, Eastman Kodak Co. announced yesterday that it would adopt the strategy George Eastman formulated over 100 years ago and concentrate on pictures.

Chief Executive Officer George M. C. Fisher, who came to the company from Motorola Inc. in December, said Kodak would sell its "noncore" businesses, including Sterling Winthrop Inc., which makes pharmaceuticals and over-the-counter drugs; L&F Products, which makes Lysol and other home and personal-care products, and the Clinical Diagnostics division, which produces medical testing devices.

Together, they generated $3.7 billion last year, or about one-fifth of Kodak's $16.7 billion in revenues for 1993 -- a year in which Kodak had a $1.5 billion loss.

The company plans to build upon its traditional film and camera business and continue to perfect techniques for capturing images in digital form and storing and processing them as computer files. Such technologies have applications not only for photography but also for business customers in increasingly computerized work places.

"Imaging offers Kodak tremendous opportunities for long-term success and growth," Mr. Fisher said at a news conference yesterday.

Kodak, based in Rochester, N.Y., has been under pressure from investors to cut costs and improve performance. Indeed, it was unhappiness on the part of large, institutional investors that led the company's board to dismiss Mr. Fisher's predecessor, Kay R. Whitmore, last year.

Investors responded positively to the company's announcement, and Kodak stock closed up $1.375 a share yesterday, ending the trading day at $46.125 on the New York Stock Exchange. On Monday, Kodak's stock rose $3.25 a share on rumors that Sterling would be sold.

The reaction among financial analysts was that Kodak was finally leaving businesses that it never should have entered in the first place.

"He had to do it, and he did it," said Brenda Lee Landry, an analyst with the investment firm Morgan Stanley. "Those businesses were not making any money if you subtracted debt from operating earnings. So any earnings growth in the next 24 months will have to come from cost-cutting."

Many on Wall Street sounded a sharp note of skepticism about whether the company would find much profitability in conventional film.

"The big question, beyond the disposition of assets, is what is going to happen to the core business," said B. Alex Henderson, with Prudential Securities Research. "How are they going to offset tremendously negative factors in film and paper and demonstrate they can make money in electronic imaging?"

Among its health businesses, the company said it planned to retain only its medical and dental imaging businesses, which use both X-ray film and electronics. Kodak said that the French pharmaceuticals company Elf Sanofi, which has several joint programs with Sterling, had the right of first refusal to buy the pharmaceutical portion of Sterling Winthrop.

No buyers have yet been found for the other, smaller pieces of Sterling, which include over-the-counter remedies, or for the other Kodak units that have been put up for sale.

Kodak officials declined to say how much money they expected to realize from the sales, saying they were in preliminary negotiations with potential buyers. However, they conceded the company might have an unspecified "book loss" for the year, once all the details, including tax treatment, were worked out.

This is the second major divestiture for Kodak, which last year spun off its Eastman Chemical Co., which had $3.9 billion in sales.

As a result of the sales and divestitures, the company will be much smaller, with about $13 billion in sales compared to $20.2 billion at the end of 1992. But it will shortly have less debt as well, because the company has said it will use the proceeds of the sales "to achieve significant debt reduction." At year's end, Kodak had $7.2 billion in long-term debt.

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