ROCHESTER, N.Y. - Eastman Kodak Co.'s pension fund will be looking for a single investment manager to manage $500 million in Kodak stock once the company buys it back from investors.
The contribution is part of a $1 billion stock buyback plan the company announced earlier this month. Lehman Brothers Inc., New York, was hired for the repurchase program.
This is the first contribution the company has made to the $5.3 billion fund since 1982. What's more, the $500 million stock contribution puts the fund just under the 10% stock limit pension funds are allowed to hold in company securities. Kodak's pension fund does not hold any company securities, the spokesman said.
A spokesman for Kodak said the company hasn't set a deadline yet to hire a new manager. The spokesman would not speculate on the limitations the manager might have in selling the stock.
If the stock is sold on the open market, Kodak and the money manager would need to agree on specific terms. In addition, the pension plan may be considered an affiliate of Kodak's; in that case, the offering would need to go through the Securities and Exchange Commission, said Richard Susko, partner at Cleary, Gottleib, Steen & Hamilton, New York.
One important question Kodak executives and the manager must answer: how many times can the manager go to the market and sell an agreed upon number of shares.
The stock contribution will create a wider margin between the accumulated benefits and the market value of the plan. According to Kodak's 1994 annual report, projected benefits were about $5.9 billion; accumulated benefits, about $5.1 billion.
"While the pension fund has performed very well, this contribution will provide a funding level consistent with our view of what is needed to meet future obligations of the plan," Kodak Chief Executive Officer George M.C. Fisher, said in a statement.
But several experts think investors would fare better by holding and not selling their shares.
"Management is confident that the business outlook is strong," said Jonathan Rosenzweig, an analyst for Solomon Brothers, New York, who is recommending investors hold onto their shares.
Mr. Rosenzweig estimates cash reserves will grow to about $1 billion within one year.
Clifford Smith, the Clarey professor of finance at the Simon School of Business at the University of Rochester, said he didn't see how Kodak's buyback announcement would translate into a sell recommendation for shareholders.
"If senior management knows arguably more about Kodak, and they've decided that at the current price that the most attractive investment is in their own shares.... that's a pretty strong indication of their expectations on the future financial performance of the company," Mr. Smith said. "There's nothing in the announcement (of the buyback) that suggests to me that you could sell the stock today....and expect to do any better."
Mr. Rosenzweig said some shareholders, disgruntled by Kodak's sale of its health business, might want to dump the stock. Kodak sold Sterling Winthrop Inc., the drugs and consumer health products division; L&F Products, the personal care and household products division; and its clinical diagnostics division in 1994. But none of the proceeds was used to reward shareholders, he said.
The buyback "is positive for shareholders who were expecting some kind of a reward for the improved performance of the company as well as the success in the divestiture of the health and consumer products businesses," Mr. Rosenzweig said.
But Michael Price, president of Heine Securities Corp., Short Hills, N.J. said selling these businesses was the right thing for Kodak to do. Heine had owned Kodak shares, but since has sold them, and is now waiting for the stock to go drop before buying it again.
Catherine Lawson, chairman and chief investment officer at Highland Investment Group L.P., Fairfield, Conn., said the buyback is Kodak's latest move to concentrate on its core strengths. Kodak management recognized it had accumulated cash at a very high rate and wanted to use it without being forced to make any hasty acquisitions, she said.
Ms. Lawson expects Kodak to hoard its cash flow for an acquisition in the next few years in its technology sector. And although Highland doesn't own any Kodak stock today, Ms. Lawson said it might consider investing.
"I am more impressed with the way Kodak continues to put back all the pieces to the puzzle," she said. "They've tried to be too many different things in the past."
The University of Rochester's Mr. Smith agreed, and said Kodak probably will extend itself in a narrow and focused way in the digital imaging area. "To me, (the buyback) was a focused, well-reasoned proposal."