Eastman Kodak Co., the world's largest maker of photographic film, said Monday that it agreed to purchase Creo Inc., a supplier of prepress systems used by commercial printers, for $980 million in cash, or $16.50 per share.

Vancouver-based Creo provides workflow software used by printers to manage the movement of text, graphics and images from the computer screen to the printing press. Kodak's graphics communications group will add Creo to its line-up of digital and traditional printing products and services.

The company said Creo presently has about $85 million of cash on its balance sheet and no debt. The transaction, which has been approved by Kodak's and Creo's boards, is subject to regulatory and court approvals, as well as the approval of Creo's shareholders.

Separately, Creo said it will postpone its Feb. 10 annual shareholder meeting until March 29, at which time shareholders will vote on the proposed deal.

Eastman Kodak said the acquisition will modestly dilute earnings for the rest of 2005, but the company remains committed to meeting guidance for 2005 operating profit of $2.60 to $2.90 per share. Analysts surveyed by Thomson First Call are looking for the company to post 2005 earnings of $2.62 per share, on average.

For 2006, Kodak expects that Creo will add at least 5 cents per share to operating earnings, driven by cost savings and revenue growth available to the combined company. In 2006, Kodak also expects about $700 million of incremental revenue from Creo, whose sales in the 2004 fiscal year totaled $636 million and whose gross margins exceed 40 percent.

The company said the deal should help Kodak meet or beat operating earnings guidance of $3 per share for 2006. Analysts are forecasting fiscal 2006 earnings of $1.89 to $3 per share, with an average estimate of $2.67.

"Graphic Communications represents one of the three pillars of Kodak's digitally oriented growth strategy," said Daniel A. Carp, Kodak's chairman and CEO. "The purchase of Creo strengthens that pillar, and essentially concludes the company's acquisition plan, announced in September 2003."

Kodak said it ended 2004 with $1.255 billion in cash on its balance sheet, and will finance the 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. "The debt incurred for this purchase will keep us well within our financial covenants with our commercial banks, and we intend to return to our current debt levels in 2007 as other debt outstanding matures."

In October, Creo announced plans to review strategic alternatives - including acquisitions, alliances, resale arrangements, business combinations, and the sale of all or some of the company. In recent weeks, however, the company was faced with a dissident shareholder group representing about 5.8 percent of Creo shares, which sought to nominate a slate of directors that would replace current management.

Top of Page

BACK to STEP News