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If a picture is worth a thousand words, then one word can be worth millions. That word is Polaroid. One Equity Partners, the private equity investor that acquired Polaroid Corp.’s assets out of bankruptcy for $479 million in 2002, knew that the iconic name would someday be worth something to someone. “We were looking at it as a strong company, with a strong brand, that needed to have a little bit of work,” says James Koven, a partner at One Equity. For at least a decade, the instant photography company founded in 1937 by inventor Edwin Land had been fading, as sales slumped with the introduction of faster film processing and the advent of digital photography. Weighed down by debt, the Waltham, Mass.-based Polaroid was forced to declare bankruptcy in 2001. Yet One Equity, the private equity unit of Bank One Corp., now part of J.P. Morgan Chase & Co., believed Polaroid retained much of its cachet as a recognizable consumer brand name worldwide, despite its tumble. Two and a half years later, Petters Group Worldwide LLC, the Minneapolis product development company that had been licensing the name, decided to put down $426 million for the right to own it. One Equity, a 53 percent owner, managed to quintuple its original $60 million investment with the sale to Petters, combined with proceeds from redemptions of preferred securities in 2003 and 2004. One Equity executives approached Polaroid in the fall of 2001 after its Chapter 11 filing, and worked with management to craft a plan that became a stalking-horse bid. One Equity eventually prevailed over a group of unsecured creditors that included Deutsche Bank AG by agreeing to give the creditors a 35 percent stake in the new entity, while keeping the remainder. Through the bankruptcy process, One Equity bought the distressed company’s assets for a song, using some of Polaroid’s excess cash on its balance sheet to pay off senior lenders. It acquired substantially all the assets, including the famous trademark name and significant assets in the Netherlands, Scotland, China and Mexico, for $479 million in July 2002, including debt. What emerged was a new company, Polaroid Holding Co., whose shares were subsequently listed for over-the-counter trading as part of the agreement with unsecured creditors to allow them to cash out. What was left behind wasn’t a pretty picture, however. Disgruntled shareholders’ legal wrangling over whether the company was properly valued prior to the sale dragged on for more than a year before a bankruptcy court ruled against them. Meanwhile, thousands of Polaroid employees lost their jobs before the bankruptcy filing. One Equity rehired most of the roughly 3,000 remaining employees, down from over 8,000 five years ago, but declined to assume Polaroid’s significantly underfunded pension obligations. One Equity hired former Ford Motor Co. CEO Jacques Nasser as a senior partner at the firm to take up a nonexecutive chairman’s role at Polaroid. Nasser’s prior turnaround effort at Ford was widely viewed as a failure. But he brought in former Compaq Computer Corp. executive Michael Pocock as president and CEO in March 2003 and helped refocus management on the core instant camera and film products while developing the digital printing business. Sales continued to decline, but the company tried to keep costs in line with weak sales. “They streamlined the product lines and focused on those generating the most cash,” says Brad Geer, a director at Houlihan Lokey Howard & Zukin’s Minneapolis office who advised the unsecured creditors’ group during the auction and later advised Petters on the acquisition. Petters, meanwhile, also saw Polaroid’s potential amid its challenges. In September 2002, the Minneapolis company began licensing the Polaroid name to market consumer electronics like DVD players and televisions in North America, and was seeing sales growth. “It was Tom Petters who recognized early on the value of the brand and the ability to use it beyond the scope of products that it historically had been used for,” Geer says. By January 2005, Petters had agreed to buy Polaroid, with hopes of building a global imaging and consumer electronics business on the strength of its name. Copyright �2005 TDD, LLC. All rights reserved.

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