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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Eastman Kodak: Not a pretty picture

C. HUYGENS - Wednesday, October 26, 2011
Ever since Stone v. Ritter sensitized corporate boards to the risks of not protecting a firm's intangible assets, there has been a progressive growth of intangible asset monetization programs. These have been recently supplemented by nascent reputation risk management programs.

From time to time, a booster has enhanced that sensitivity. Today we have a good example of that.The disposition of Kodak's (NYSE:EK) patent portfolio is exemplary.

As reported by Bloomberg (10/27, Keehner, McCracken, and Saitto), "Eastman Kodak Co.’s lenders sent a letter to the board of directors reminding the company of its fiduciary duty to sell its patent portfolio for fair market value. " In case you are missing the punch line, the article explains that "'Kodak’s board has been put on notice by lenders, who are saying ‘If you destroy value, we will sue you,’' said Amer Tiwana, an analyst at CRT Capital Group LLC in Stamford, Connecticut."

The reputation metrics, as we noted earlier, reflect low expectations and suggest progressive value destruction of the likes that moved Johnson & Johnson's equity holders to sue last December.

Over the trailing twelve months, the Steel City Re Corporate Reputation Index ranking for Kodak decreased from the 12th percentile to the lowest rank of zero (0) among the 29 firms comprising the Electronic Appliances sector. The exponentially weighted moving average of the volatility of the reputation index was most recently under 7%, and the twelve week trailing vector and velocity were most recently -55% and -7%. The corresponding return on equity over the trailing twelve months has been a dismal -44% relative to the median of its peers.

The company's intangible asset fraction is now in excess of 500% of enterprise value which would indicate to some that the patent portfolio is worth more than $1.25 billion. The creditors would like to get their hands on that value. The company's equity value is around $250 million. The equity holders are loathe to surrender that excess intangible value. The board is between the two, and that is not a pretty picture.

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