A federal judge has issued a temporary injunction blocking Eastman Kodak's deal to merge its photo-finishing operations with those of Fuqua Industries Inc., and the company continues to face questions about its $5.1-billion acquisition of Sterling Drug Inc.
Kodak announced Tuesday that it had been tendered more than 96% of Sterling shares during the offering period that expired Monday, and said that it expected to complete the acquisition in a few days.
The company has scheduled a meeting with analysts Thursday in New York in an effort to convince them of the merits of the Sterling deal.
In the Fuqua dispute, U.S. District Judge Eldon Mahon in Ft. Worth issued his ruling in response to a suit filed in December by Phototron Corp., a San Bernardino wholesale photo-finishing company.
Expected Favorable Ruling
The suit contended that if the proposed merger went through, Kodak and Fuqua would control 50% of the wholesale photo-finishing industry and 80% of the total market for photo-related paper and chemicals, said Brenda Landry, an analyst for Morgan Stanley & Co.
The injunction will remain in effect pending a trial on the merits of the case.
"We hoped to get the court's approval last night and sign the papers today," said a Fuqua spokeswoman at the company's Atlanta headquarters. "We had not really anticipated any additional problems."
Fuqua spokeswoman Donna Browning, in arguments supporting the merger, said the merger would result in a new company controlling only 25% of the total photo-finishing market in the United States.
The Federal Trade Commission and the Justice Department's antitrust division approved the proposed merger in December and said their investigation did not show any evidence that federal antitrust laws would be violated.
On Dec. 7, Kodak announced plans to merge its wholesale photo-processing laboratories with Fuqua's Raleigh, N.C.-based subsidiary, Colorcraft Corp.
Several financial analysts have lowered their opinions of Kodak in recent weeks on grounds that the company overpaid for Sterling, the maker of Bayer aspirin, Lysol disinfectant, d-Con rat killer, Phillips Milk of Magnesia and other products.
Deal Worth $5.1 Billion
"Obviously there are pros and cons to this," said Michael Ellmann, a stock analyst with Wertheim Schroeder & Co. "But I want to hear what management has to say."
Kodak will pay $89.50 each for 54.5 million of the 57 million outstanding shares of Sterling stock, more than $34 higher than the stock was selling for at the end of 1987. The company will acquire the 2.5 million shares that weren't offered for sale for the same price after the deal is final, Roberts said.
The total value of the deal is expected to be $5.1 billion.
Sterling, based in New York, has 22,000 employees and has annual sales of about $2 billion.
Kodak, based in Rochester, has 124,000 employees and annual sales of about $13 billion.
The acquisition will help Kodak move into the $110-billion pharmaceutical industry and give the company an established pipeline to get drugs to market, said Kodak spokesman Charles Smith.
Bond Ratings Downgraded
On Monday, Kodak's bond ratings were downgraded by Moody's Investors Service to Aa2 from A2, largely because of the heavy borrowing needed to pay for Sterling.
Sterling's bond rating was also downgraded to Aa1 from A2.
Kodak's stock gained 50 cents a share to close at $41.25 on the New York Stock Exchange. Sterling shares gained 12.5 cents to close at $89.125.
Kodak officials have said they do not plan to sell any parts of Sterling and will keep the company's organization intact.