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Eastman Kodak Co. said Monday it has struck a deal to buy Vancouver's Creo Inc. for $1.21-billion in cash as part of its effort to bolster its position in the commercial printing market.

Under the agreement, Rochester, N.Y.-based Kodak will pay $16.50 (U.S.) a share or $980-million (U.S.) for the Canadian digital-printing technology firm. Creo closed Friday at $14.36 on the Nasdaq stock market. The pair had been rumoured to be in talks earlier this month.

The boards of both Creo and Kodak have given their support to the deal, which also needs shareholder approval.

Following news of the bid, Creo stock jumped nearly 14 per cent on the Nasdaq.

Creo investors will vote on the transaction at a meeting on March 29. Creo's annual meeting has also been rescheduled to that date. Creo's directors are recommending that shareholders endorse the proposal.

"The proposed transaction will not only generate immediate return for Creo shareholders but will also benefit our customers through the combination of leading prepress equipment and consumables," Creo chief executive officer Amos Michelson said in a statement.

"By uniting our strengths, Creo and Kodak can continue to actively drive the evolution of the graphic communications industry while delivering a complete line of the highest-quality, most competitive products and services in our industry."

The announcement comes as a group of dissident shareholders have been to oust Creo's management and board, saying they wanted to divert the company from the "road to disaster" by cutting costs and refocusing on its core business.

Last year, Creo announced plans for a strategic review aimed at maximizing shareholder value, including the possible sale of all or part of the firm.

"This transaction represents the culmination of an extensive process. The special committee of independent directors of Creo and its financial advisers canvassed all available options to maximize value for Creo shareholders," Ken Spencer, chair of Creo's special committee, said.

"We are pleased that Creo's success has been recognized by one of the world's leading imaging companies."

Separately, Eastman Kodak said the acquisition will modestly dilute earnings for the rest of 2005, but the company remains committed to meeting guidance for 2005 operating profit of $2.60 to $2.90 per share.

Analysts surveyed by Thomson First Call are looking for the company to post 2005 earnings of $2.62 per share, on average.

For 2006, Kodak expects that Creo will add at least 5 cents per share to operating earnings, driven by cost savings and revenue growth available to the combined company. In 2006, Kodak also expects about $700 million of incremental revenue from Creo, whose sales in the 2004 fiscal year totalled $636 million and whose gross margins exceed 40 per cent.

The company said the deal should help Kodak meet or beat operating earnings guidance of $3 per share for 2006. Analysts are forecasting fiscal 2006 earnings of $1.89 to $3 per share, with an average estimate of $2.67.

"Graphic communications represents one of the three pillars of Kodak's digitally oriented growth strategy," Kodak chairman and CEO Daniel Carp said.

"The purchase of Creo strengthens that pillar, and essentially concludes the company's acquisition plan, announced in September 2003."

With Associated Press

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