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News > Companies
Polaroid mulls options
July 26, 2001: 3:48 p.m. ET

Troubled instant film maker considers selling company as it restructures debt
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Many can remember holidays, birthdays, and other important milestones marveling as instant Polaroid photographs developed before their eyes.

Instant photography remains popular, but today's era of one-hour developing and instant digital photography have left the company that started it all struggling for a survival strategy that could include an outright sale of the business.

"It's getting out of everything that isn't critical to the company. It is really a process of buying some time and of making the company more efficient," one source familiar with Polaroid's situation said.

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Polaroid's i-zone is the nation's most popular camera (Source: Polaroid)
The company wants to have a full restructuring plan in place by the end of the year when one piece of its massive $948 million in debt comes due. That means any sale or merger is likely to be announced then or by early 2002 as suitors wait to see just what the plan is, analysts said.

Some sources familiar with the situation believe rivals in digital printing technology such as Hewlett-Packard (HWP: down $1.68 to $24.00, Research, Estimates) and Canon (CAJ: down $0.26 to $35.00, Research, Estimates) likely would be potential suitors for the streamlined company.

Other potential candidates would be Schroders Ventures and Japan's Fuji Photo Film Co. Ltd. (FUJIY: down $1.05 to $40.25, Research, Estimates). Sources close to the situation said Schroders PLC (SDR.L: down $2.00 to $805.00, Research, Estimates) could be interested since it recently acquired Imation's film business and Minnesota Mining and Manufacturing Co.'s (MMM: up $1.10 to $111.46, Research, Estimates) private lab. And Fuji is the only other player in the instant film business.

A Hewlett-Packard spokesman said only that the company does not comment on rumors or speculation. Canon was not immediately available for comment.

What could interest the companies is Polaroid's well-established distribution channels and its instant film and digital technologies, analysts said.

But the question remains as to which suitors would be most willing and able to take on such debt and competitive troubles.

On July 11, Cambridge, Mass.-based Polaroid obtained a last-minute extension from creditors on nearly $1 billion in debt as it scrambled to restructure, selling off non-core assets and considering an outright sale of the company once considered one of Wall Street's "Nifty Fifty."

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One condition of the banks for extending the loan deadlines to Oct, 12 was that the company withhold interest payments to bondholders, who must now be reckoned with. Polaroid plans to meet with bondholders in August to discuss the plan.

The company has three outstanding notes valued at $150 million, Polaroid spokesman Skip Colcord said. One is a 6.75 percent short-term note that comes due on Jan. 15, 2002. The others are long-term notes, a 7.25 percent note due Jan. 15, 2007, and an 11.5 percent note due Feb. 15, 2006.

Analysts and those familiar with the situation believe that angry bondholders will force the company to accept a pre-packaged bankruptcy filing, yet others believe Polaroid still holds a few valuable cards that could turn the company around without going Chapter 11.

"We're looking at the full gamut of alternatives," Colcord said.

First off, Polaroid still sells more cameras each year than anyone else. Last year it sold 4 million of its popular i-zone, which produces thumbnail size instant photo stickers.

The company  also has made no secret of the fact that it wants to unload assets not central to its core instant imaging business. These include its polarized sunglass lens business and identification card unit.

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  We're looking at the full gamut of alternatives  
     
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  Skip Colcord
Polaroid spokesman
 
Sources close to the situation said possible buyers include upscale sportswear maker Oakley Inc. (OO: up $0.78 to $19.83, Research, Estimates) and Italy's Luxottica (LUX: down $0.04 to $17.00, Research, Estimates), which operates Lenscrafters stores and recently acquired the Sunglass Hut retail chain.

Oakley, which makes its own lenses, declined to comment on whether it would be interested in Polaroid, but one analyst believes it unlikely. A Luxottica spokeswoman at the company's Milan, Italy, headquarters could not be reached for comment on this story.

"I think that Oakley in some respects does all its stuff by itself," Ladenburg Thalmann & Co. analyst Eric Beder said. Expanding capacity would be the only thing Oakley would be interested in."

Polaroid is selling these assets in order to focus on its new digital printing technology dubbed Opal and Onyx. Essentially, the process allows consumers to bring their digital cameras to a kiosk located in a store or mall, insert the memory card from the camera and receive 35mm-quality prints almost instantly.

The company has been trying to find a partner to help distribute and share the cost of the new system, Polaroid said.

"With the new technology, the images can be created using anybody's camera, and the cost to print the film is about the same as for 35 mm prints," Buckman Buckman & Reid analyst Ulysses Yannas said.

But some are skeptical that the new technology is strong enough to pull the company from the brink.

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"I think it's going to be difficult. I think the expectations may be overzealous," Salomon Smith Barney analyst Jonathan Rosenzweig said.

Once a Wall Street darling, Polaroid was a juggernaut for investors for decades with its cutting edge instant cameras and film. But as new technologies emerged such as one-hour photo processing and more recently the rise of digital photography, Polaroid stuck to what had become a niche market.

Additionally, the company became saddled with debt in 1989 after successfully fending off a hostile takeover by Shamrock Holdings. In 1986 the company recorded $171 million in debt. Three years later, that figure soared to $831 million, and it has been struggling to pay it down ever since, amidst declining market share and a slowing economy.

"It's always been something that we've strived to lower, but something Polaroid has been successfully able to manage," Colcord said. graphic

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