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Japan Recommends Temporary State Control for Tokyo Electric

December 27, 2011 by Leave a Comment

The order came after Tokyo Electric Power requested ¥689.4 billion, or $8.8 billion, in government aid to help pay for its response to the nuclear accident at its Fukushima site. The calamity, caused by the March 11 earthquake and tsunami, forced the evacuation of more than 100,000 people and led to a massive radiation leak.

The utility may have to pay ¥4.5 trillion in compensation payments by 2013, a government panel said in October, a sum that threatens to render the company insolvent.

The company will also most likely be forced to decommission all six nuclear reactors at Fukushima Daiichi at a huge cost, while the future of four other reactors at a second site is also on the line after a national outcry over the disaster.

Meeting with Tokyo Electric executives Tuesday, the Japanese trade minister, Yukio Edano, urged the utility to consider options including ceding control to the government.

Tokyo Electric “should not exclude various possibilities, including temporary state control” in coming up with a comprehensive turnaround plan, promised for next spring, Mr. Edano said. He asked the utility “to work toward restoring a company in 5 to 10 years that can win back public trust.”

Still, it remains unclear whether the government will force changes that experts have long called for at Tokyo Electric, also known as Tepco, like sweeping changes to management or a breakup of the monopoly the utility enjoys over electricity generation and distribution in the Tokyo area.

The details of a possible government takeover also remain murky.

A new government-backed fund may buy preferred stock in Tokyo Electric, effectively nationalizing the utility to avoid insolvency, the Yomiuri newspaper reported this month.

The government may ask banks to lend ¥1 trillion to the company, Yomiuri said.

Mr. Edano refused to comment on details, saying nothing had been decided.

Tokyo Electric has already been granted initial funding of about ¥900 billion from the government-backed fund to help compensate victims. The fund is financed with taxpayers’ money, as well as from contributions from major electricity companies in Japan. In theory, Tokyo Electric would repay any money it receives.

Tokyo Electric’s president, Toshio Nishizawa, said the company would seriously consider various possibilities for the company. The company wanted to ensure that it “never let such an accident happen again,” he said.

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DealBook: Eastman Kodak Mulls Bankruptcy

October 1, 2011 by Leave a Comment

The Kodak film factory in Rochester, New York. Kodak is trying to move away from film and into digital businesses like inkjet printers.David Duprey/Associated PressThe Kodak film factory in Rochester, New York.

9:12 p.m. | Updated

Eastman Kodak is considering filing for bankruptcy as it explores ways to lift its sagging fortunes, according to a person briefed on the matter.

Kodak said on Friday that no bankruptcy filing was imminent, but it did say that it had hired the law firm Jones Day, which has a prominent restructuring practice, to provide advice.

The news of the hiring, just a week after Kodak unexpectedly tapped its credit line, heightened worries about the viability of the company’s turnaround plan. With investors again rattled, Kodak’s stock price plunged 54 percent on Friday.

“It’s one of those cascading effects,” said Chris Whitmore, an analyst with Deutsche Bank Securities. “They are kind of cascading over the waterfall.”

The chief hope for Kodak, which has reported only one full year of profit since 2004, has been its planned sale of 1,100 digital imaging patents, which the company said accounted for about 10 percent of its total patent portfolio.

While the sale of patents was announced in July, the process is taking longer than expected, a person close to the sales process said, despite a burgeoning market for intellectual property. The phone maker Motorola Mobility, for example, was able to get a $12.5 billion takeover deal from Google in large part because of its expansive patent collection. Kodak has said that it has no timeline on the patents sale.

Kodak responded to the talk about bankruptcy on Friday afternoon after first The Wall Street Journal reported the hiring of Jones Day and then Bloomberg News said that a bankruptcy filing was among the options being considered.

“As we sit here today, Kodak has no intention of filing for bankruptcy,” Gerard K. Meuchner, a Kodak spokesman, said in a statement. “There has been no change in our strategy to monetize our intellectual property.”

The company added: “It is not unusual for a company in transformation to explore all options and to engage a variety of outside advisers, including financial and legal advisers.”

Founded 131 years ago by George Eastman and based in Rochester, Kodak became famous for its yellow packages, and its film at one time dominated the market. But the company has struggled to reinvent itself for decades, as digital technology has replaced film.

The current chief executive, Antonio M. Perez, has tried to reinvigorate Kodak by focusing on inkjet printers, commercial printing and the firm’s vast portfolio of patents, which the company has licensed and is trying to sell.

Mr. Perez’s strategy has caused the company to burn through cash, and Shannon Cross, an analyst with Cross Research, said it was only a matter of time before the cash ran out.

“I’ve had a sell on the stock for almost 10 years figuring this day would come if they weren’t able to make significant changes in their cash burn,” she said in an interview on Friday. “We took the price target down to a dollar. We were anticipating that the equity was virtually worthless.”

The company had $957 million in cash and short-term investments as of June 30, and says it has enough liquidity to meet its obligations for now. The spokesman said Kodak intended to pay a $14 million debt coupon payment due on Saturday.

As recently as July, Mr. Perez predicted that Kodak would be a profitable and sustainable digital company by 2012. But the surprise announcement last week that Kodak had tapped its credit line for $160 million shook investor confidence in Mr. Perez’s turnaround effort.

On Tuesday, Moody’s lowered Kodak’s ratings even further into junk status, saying the downgrade “reflects the company’s weak financial performance and the challenges Kodak faces in achieving sustained profitability and positive cash flow over the intermediate term.”

Moody’s said the $160 million withdrawal was especially troubling since it occurred right before the fourth quarter, typically a strong period for Kodak’s cash flow.

Analysts have questioned whether potential bidders are hesitating to participate in the patent portfolio auction because of concerns that a sale would be deemed fraudulent if Kodak were to later file for bankruptcy. (Creditors would be entitled to sue the buyer for what is known as “fraudulent conveyance.”)

Mr. Meuchner, the Kodak spokesman, said, “We’re not concerned about fraudulent conveyance in regards to the sale of our I.P. portfolio.”

The investment firm Lazard, which is advising Kodak on its patent sale, declined to comment, as did James L. Wamsley III, a lawyer at Jones Day.

Evelyn M. Rusli contributed reporting.

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Income Slips For Yahoo, But Ads Show Some Promise

April 20, 2011 by Leave a Comment

SAN FRANCISCO — Carol A. Bartz, Yahoo’s chief executive, still has work ahead to lift her company out of its slump.

That reality was underscored on Tuesday when Yahoo reported its first-quarter earnings, which showed promising signs in the company’s main business — display advertising — but troubles in search. The mixed results do little to appease critics of Ms. Bartz’s turnaround plan, which she put in place soon after joining Yahoo two years ago.

Ms. Bartz is trying cut costs and build on the company’s strength in online editorial content. But it continues to trail faster-growing rivals like Google and Facebook.

The center of her turnaround effort, Yahoo’s display advertising business, grew 10 percent, to $471 million, compared with the quarter a year ago. The sector, which includes banner ads, is one of the company’s bright spots.

On a conference call with analysts, Ms. Bartz said Yahoo was making “tangible progress,” and that “over all, our turnaround is proceeding on schedule.” She cited higher traffic to a number of Yahoo’s media properties like its news blogs, and its coverage of the Academy Awards.

But Yahoo’s other businesses contracted, particularly search, which is operated by Microsoft through a partnership. Revenue from search, after payments to Microsoft and others, fell 19 percent, to $357 million.

Ms. Bartz acknowledged in the call that the Microsoft partnership, a prominent deal when it was announced two years ago, has not met expectations. Technical complications have made the revenue the two partners collect per search decline since their search engines were combined.

Still, Yahoo said it would receive a guaranteed minimum payment from Microsoft for the next year in the United States, regardless of how search advertising performs. After that, the payments may decline if the problems are not fixed. “We are working very close with Microsoft on these issues,” Ms. Bartz said.

Yahoo’s net income in the quarter fell 28 percent, to $223 million, or 17 cents a share, compared with $312 million, or 22 cents, in the year-ago quarter. The comparison is complicated by the sale last year of Zimbra, an e-mail company, which had lifted Yahoo’s 2010 first-quarter profit.

Yahoo said revenue in the quarter fell 24 percent, to $1.21 billion, from $1.6 billion. Selling and discontinuing some products as well as outsourcing search businesses to Microsoft contributed to the decline.

Excluding commissions paid to advertising partners, revenue was $1.06 billion, matching what analysts had expected.

For its part, Google reported a 27 percent increase in first-quarter revenue.

Yahoo is losing ground in online ad spending. Its share is expected to drop 1.5 percentage points to 11.9 percent this year, according to eMarketer.

Yun Kim, an analyst with Gleacher Company, said he was happy Yahoo at least matched expectations and did not issue a disappointing forecast. There may be a lot of focus on Yahoo’s troubles with search, he said, but its future depends on its ability to entice advertisers into long-term deals for display ads.

“There’s still a lot of work to be done there,” Mr. Kim said. “The inflection point whether they are going to make things happen will come in the second half of the year.”

A major area of concern is the Americas, Yahoo’s biggest source of revenue, Mr. Kim said. Revenue in the region excluding payments to partners has declined for nearly two and half years, and that erosion accelerated in the first quarter, to 11 percent, compared with single digits in recent quarters, he said.

Ms. Bartz, who has laid off hundreds of employees and ended several products that failed to catch on, has kept operational expenses in check. They fell 8 percent, to $647 million.

Last week, investors punished Google for letting operational expenses grow 55 percent in the first quarter, from newly hired employees and salary increases for its entire work force.

Shares of Yahoo rose 1.7 percent, to $16.40, in after-hours trading on Tuesday after its results beat the low expectations set by analysts. During regular trading, shares fell 1.4 percent, to $16.12.

For the second quarter, Yahoo said it expected that revenue excluding payments to advertising partners would be $1.075 billion to $1.125 billion. Income excluding certain items is expected to be $160 million to $190 million.

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