Has the Kodak Moment Passed?

Less than two weeks ago, shares of Eastman Kodak Co. (NYSE: KODK) jumped by a factor of nearly five following an announcement from the U.S. International Development Finance Corporation (DFC) of a $765 million long-term loan to support generic pharmaceuticals production at the company. The fact that Kodak had no prior experience with making pharmaceuticals raised a few eyebrows.

Eyebrows went up further following disclosure of possible insider trading ahead of the DFC announcement. The questions raised by the trades have now resulted in a delay in approving the loan, and Kodak shares are paying the price.

Last Friday, the DFC tweeted: “On July 28, we signed a Letter of Interest with Eastman Kodak. Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared.”

The stock traded at $60.00 a share on July 29, up from around $2.50 on July 27, and closed at $14.88 on Friday. Shares have been trading right around $15 for the past week but dropped by about 40% to around $9.00 in Monday’s premarket.

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In a letter dated August 4, Senator Elizabeth Warren (D-MA) asked U.S. Securities and Exchange Commission (SEC) Chair Jay Clayton to investigate stock purchases by Kodak CEO Jim Continenza and board member Philippe Katz “while the company was involved in secret negotiations with the government over a lucrative contract,” saying the trades “[raise] questions about whether these executives potentially made investment decisions based on material, non-public information derived from their positions.”

In her letter, Warren acknowledged that news sources in Kodak’s home city of Rochester, New York, may have shared information on July 27 that was supposed to be embargoed until July 28. Kodak, however, had failed to indicate the embargo.

On July 29, some Kodak noteholders filed with the SEC to convert some $95 million in secured convertible notes into nearly 30 million shares.

Eastman Kodak stock traded at around $10.20 early Monday, down more than 31% from Friday’s closing price of $14.88. Shares have traded 52-week range of $1.50 to $60.00.
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