Editors Note: Premium Access members of WhatTheyThink.com be sure to see complete analysis, interviews and commentary on this deal. ROCHESTER, N.Y., Jan. 31 -- Eastman Kodak Company today announced that it has entered into a definitive agreement to acquire Creo, a premier supplier of prepress systems used by commercial printers worldwide. Based in Vancouver, Canada, Creo is the world’s No. 1 provider of workflow software used by printers to manage efficiently the movement of text, graphics and images from the computer screen to the printing press. By adding Creo to its already impressive line-up of digital and traditional printing products and solutions, Kodak’s Graphic Communications Group (GCG) reinforces its status as a leading industry participant able to provide customers with all the products and services they need to be successful in a blended production environment, where digital, traditional and hybrid print jobs are converging. Under the terms of the agreement, Kodak will pay approximately $980 million in cash, or $16.50 per share, for all the outstanding shares of Creo, on a fully diluted basis. Creo presently has approximately $85 million of cash on its balance sheet and no debt. The transaction, which has been approved by Kodak’s and Creo’s respective boards of directors, is to be carried out by statutory plan of arrangement under Canadian law and is subject to regulatory approvals, the approval of Creo’s shareholders, and court approval.  “Graphic Communications represents one of the three pillars of Kodak’s digitally oriented growth strategy,” said Daniel A. Carp, Kodak’s Chairman and Chief Executive Officer. “The purchase of Creo strengthens that pillar, and essentially concludes the company’s acquisition plan, announced in September 2003.” “While this acquisition will result in some modest earnings dilution for the remainder of 2005, we remain committed to our operational earnings guidance range of $2.60 to $2.90 per share for 2005,” Carp said. “We believe we have opportunities to achieve cost and revenue synergies by combining Creo with our existing businesses. We have every intention of building on this acquisition to increase shareholder value.” 2006 Commitments Reinforced For 2006, Kodak expects that Creo will add at least 5 cents to per-share operational earnings, driven by cost savings and revenue growth available to the combined entity. In 2006, Kodak also expects approximately $700 million of incremental revenue from Creo, whose sales in the 2004 fiscal year totaled $636 million and whose gross margins exceed 40%. “While we are very pleased with the assets that currently comprise our Graphic Communications Group, the Creo acquisition offers us the opportunity to strengthen our position in the market,” said Antonio M. Perez, Kodak’s President and Chief Operating Officer. “As the pioneer of digital prepress systems and the leader in workflow, Creo will accelerate our effort to bring more products to market sooner, for the benefit of our customers and our shareholders. With this move, we are more confident than ever in our ability to meet or exceed our operational earnings guidance of $3.00 per share in 2006.” “Creo will benefit from this transaction because Kodak brings them the size and scale necessary to increase their presence in the market,” Perez said. “Kodak will benefit because we will be able to offer end-to-end solutions with a broader suite of products from Creo, and to capitalize on the synergies this creates across GCG.” Strategic Benefits Creo will provide Kodak with an innovative digital pre-press product portfolio and established relationships in the commercial printing segment, the largest market opportunity within the graphic communications industry. Creo has more than 25,000 customers and offices in 30 countries worldwide.  The proposed transaction follows the announcement on January 12 that Kodak has entered into an agreement to become the sole owner of Kodak Polychrome Graphics (KPG), its joint venture with Sun Chemical Corporation. KPG is the world’s leading supplier of digital and conventional lithographic plates, digital color proofing products, and graphic arts films, with strong worldwide distribution. “Creo’s product line complements the work already underway at Kodak,” said James Langley, President of Graphic Communications Group and Senior Vice President, Eastman Kodak Company. “Commercial printers use Creo’s products in tandem with those sold by KPG; combining Kodak’s, KPG’s and Creo’s portfolios will give customers what they want – a single supplier for their graphic communications needs. We will be able to marry our digital presses with Creo’s prepress offerings, including their market-leading workflow, to accelerate growth.” “Creo is highly respected in its industry, and its customers, especially users of its leading workflow software, are loyal to its products because printers prefer to remain with software programs once they are installed and work successfully,” Langley said.  Upon the closing of the transaction and the completion of the organizational structure of Kodak’s Graphic Communications Group (GCG), Creo’s operations will become part of the Graphics Solutions & Services operating unit of GCG. Financing Kodak ended 2004 with $1.255 billion in cash on its balance sheet and a debt-to-capital ratio of 37.9%. The company’s debt decreased by $927 million in 2004, to $2.321 billion. Based on the strength of its balance sheet, Kodak intends to pay for the acquisition by issuing debt. “We have every confidence that we will have ready access to the debt markets to finance this acquisition,” said Robert Brust, Kodak’s Chief Financial Officer. “The debt incurred for this purchase will keep us well within our financial covenants with our commercial banks, and we intend to return to our current debt levels in 2007 as other debt outstanding matures. What’s more, we have already factored into our earnings guidance the associated financing cost.”