Creo Caps Kodak's Digital Drive

By: Jim Rosenberg In its move into digital technologies, Eastman Kodak Co. announced an agreement yesterday to acquire Creo Inc. for $980 million in cash to be raised by issuing debt.

The agreement comes less than three weeks after Kodak said it will buy out partner Sun Chemical's share in their Kodak Polychrome Graphics joint venture for $817 million.

Creo was the successor company to Scitex Corp.'s prepress business. A year ago, Kodak also bought Scitex Digital Printing, the Dayton-based inkjet operations that it sold to Scitex 10 years earlier.

The deal for Creo was approved by each company's board of directors and awaits shareholder and regulatory approvals. Creo shareholders are to vote on the proposed transaction at an annual meeting rescheduled for March 29. Traded on the Nasdaq and Toronto stock exchanges, Creo showed about $85 million of cash on its balance sheet and no debt.

KPG, headquartered in Norwalk, Conn., and Creo, based in Vancouver, British Columbia, have been competitors in the newspaper prepress and consumables market, notably in plates and thermal exposure units for computer-to-plate output.

Creo sells software and hardware for computer-to-plate imaging, digital photography, scanning, and proofing systems, as well as printing plates and proofing media. It also supplies on-press imaging technology, digital press components, color servers, and high-speed digital printers.

How product overlaps will be handled remains to be determined. Kodak Senior Vice President James Langley said in a Monday teleconference, "the addition of Creo brings together the platesetters of Creo and the plates of KPG." A Graphic Communications Group spokesperson later clarified that Langley was referring to an example of possible synergies, not to the fates of particular product lines. About the "KPG platesetting business," the spokesman said, "no decision has been made."

In a prepared release, Langley said that on the commercial side, printers "use Creo's products in tandem with those sold by KPG; combining Kodak's, KPG's and Creo's portfolios will give customers what they want -- a single supplier for their graphic communications needs."

Kodak began buying businesses in 2003 to expand its own digital technology offerings in several markets. Kodak Chairman and CEO Daniel A. Carp said in the same teleconference that the agreement to acquire Creo means "we have essentially reached the conclusion of the acquisition program of our digital growth strategy."

Kodak expects digital products and services sales to rise from $5.5 billion in 2004 to $8 billion this year, and its conventional photochemical business to fall to about $6.6 billion from $8 billion in 2004. Kodak said KPG will add approximately $1.1 billion to its revenues and extend the global reach of its products for digital printing. Creo had sales of $636 million in fiscal year 2004, and Kodak said Creo will add approximately $700 million to Kodak sales in 2006.

In a statement announcing the agreement, Creo CEO Amos Michelson said it concludes "a strategic review process that began last summer" (E&P Online, Oct. 21). He said the deal would benefit not only Creo shareholders, but also customers through economy of scale achieved by combining Kodak and Creo resources, which "will allow us to speed up product development and ... innovations." Michelson added that Kodak gains "a pipeline of promising products from Creo's leading research and development organization," as well as access to Creo's installed base of computer-to-plate and workflow systems.

As part of the strategic review, a special committee of Creo's independent directors and its financial advisors "canvassed all available options to maximize value for Creo shareholders," said Ken Spencer, chair of the special committee. He called the proposed transaction "the culmination of an extensive process."

Kodak's Monday announcement concerning Creo followed its Friday announcement that upon completion of its acquisition of all of KPG, it would create two operating units within a new Graphic Communications Group, with Langley as president, in order to "present a single face to the market."

Creo and KPG will be integrated within the Graphic Solutions & Services unit, under former KPG CEO Jeff Jacobson as president (and the group's chief operating officer). The unit's three "strategic Product Groups will be Digital Solutions (including some inkjet products), Prepress Solutions (including plates, film, CTP systems), and Global Services and Solutions. A second unit will handle high-speed/volulme inkjet and document-scanning technologies.