Kodak expands, diversifies commercial printing business

Kodak will purchase Heidelberg’s 50 per cent interest in NexPress Solutions LLC, a 50/50 joint venture of Kodak and Heidelberg which makes digital colour printing systems, and the equity of Heidelberg Digital LLC, a manufacturer of digital black and white printing systems.

Kodak also will acquire NexPress GmbH, Heidelberg’s German subsidiary, and certain inventory and assets held by Heidelberg’s regional operations, or market centres, as well as offer employment to sales and service employees currently with Heidelberg’s market centres.

This move advances Kodak’s strategy of diversifying its business portfolio and accelerates its participation in the digital commercial printing industry.

Earlier this year, Kodak completed the purchase of Scitex Digital Printing, a leader in high-speed, variable-data inkjet printing, and renamed the company Kodak Versamark, Inc.

“Consistent with our digitally oriented growth strategy, Kodak is rapidly assembling the components to become an industry leader in digital commercial printing,” says Daniel A. Carp, Chairman and Chief Executive Officer, Eastman Kodak Company. “This acquisition reflects our plan to broaden our product portfolio and expand our lines of digital businesses in a selective, disciplined manner. As I indicated on January 22, I continue to anticipate that our acquisition activity in 2004 will be significantly lower than the approximately $1 billion of total actions announced in 2003. Our focus for the remainder of 2004 will be the integration of the acquisitions we have already announced, all of which are on, or ahead of, plan”.

NexPress and Heidelberg Digital are major suppliers of high-end, on-demand colour printing systems and black-and-white variable-data printing systems,

NexPress has installed more than 300 NexPress 2100 digital presses throughout the world, making it a leader in high-end, on-demand colour printing.

Heidelberg Digital has 4,000 Digimaster black and white systems installed worldwide, serving a variety of customer applications. Combined, the businesses being acquired employ approximately 2000 people.

“Our strategy involves the smart application of resources to complement Kodak’s own technology and internal strengths, including a leading portfolio of intellectual property related to electrophotography and inkjet printing,” said Antonio Perez, President and Chief Operating Officer, Eastman Kodak Company. “Through the purchase, Kodak intends to increase its share in the $17 billion digital commercial printing market in which the company participates. The move strategically positions Kodak in the market for digital production colour printing, which is growing at double-digit rates.”

The planned acquisition of NexPress and Heidelberg Digital complements Kodak’s existing businesses including Kodak Versamark, Inc., a leader in variable, on-demand continuous inkjet printing; Encad, Inc., a leading maker of wide-format inkjet printers; and its Kodak Polychrome Graphics joint venture, which is a major supplier of film, plates and other products to the graphic arts industry.

“We plan on building upon the early success of NexPress by expanding its product line to provide customers with a greater array of systems for their digital commercial printing needs,” says James Langley, President, Commercial Printing and Senior Vice President, Eastman Kodak Company.

“We will continue our R&D investment to extend the leadership position of the NexPress 2100 and expand our product offerings. Kodak is creating one of the broadest digital commercial printing portfolios in the industry, which will enable us to better serve our customers’ printing needs, from wide-format inkjet printing and transactional black and white and color printing, to high-end on-demand color publishing and continuous inkjet.

“Ownership of NexPress and Heidelberg Digital by one company will streamline the management process and enable faster decision making,” Langley says. “Customers will work with a more efficient organisation that is dedicated to developing, marketing and supporting digital printing solutions.”

Kodak expects the NexPress and Heidelberg Digital operations to increase revenue incrementally by approximately US$175 million during the remainder of 2004.

Kodak anticipates that the acquisition will result in some restructuring actions, which are difficult to estimate at this time. Kodak will be in a better position to discuss the final accounting details and magnitude of any restructuring once the acquisition closes and the operations are consolidated.

Kodak is assessing plans to significantly reduce costs in the acquired operations by taking advantage of synergies in research and development, sales, marketing and other back-office functions. By managing these businesses together rather than individually, Kodak will create a leaner cost structure and a simplified operation better positioned to serve customers’ needs.

“Today’s action reflects Kodak’s determination to make the investment required to develop new products and to maximise our return in a market that offers great promise,” Perez says. “Digital printing is a young market characterised by higher margins for consumables – such as toner and replacement parts – that benefit from the placement of machines. As the number of machines in the market increases, the consumables business will accelerate, creating an attractive annuity stream.”

“Although Heidelberger Druckmaschinen is reorganising to focus on our core business, we believe that digital commercial printing will be a profitable segment and that NexPress is extremely well positioned in the market,” says Bernhard Schreier, Chief Executive Officer of Heidelberger Druckmaschinen. “We are so confident in NexPress’s prospects that we are willing to forego cash at closing in return for a short-term earn-out package. We fully intend to work with NexPress and Kodak to ensure a continuity of service and support for all of our customers during this transition.”

Upon closing, Kodak plans to operate the NexPress and Heidelberg Digital subsidiaries as a combined business, under the leadership of Venkat Purushotham, President and CEO of NexPress. Purushotham will report to Kodak’s Langley.

Kodak plans to locate the combined headquarters at Heidelberg Digital’s Manitou Road facilities in Rochester.

“Commercial printers will continue to profit with their NexPress 2100 digital production colour presses,” Purushotham says. “And, as part of the Kodak team, the NexPress and Heidelberg Digital organisations will continue to develop, produce and market the industry’s most advanced solutions for digital print production. We are looking forward to an exciting drupa trade show in May, where we will have new announcements.”

The agreement is subject to customary regulatory approvals though it does not require shareholder approval from either company. Closing will occur after all required approvals have been obtained and certain other conditions are satisfied, which is expected at the beginning of May.

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