Kodak Shares Rise Over 25% In A Single Day After D.E. Shaw Discloses 5% Stake

TOPLINE

Shares of Eastman Kodak, a favorite among speculative Robinhood traders, continued to swing wildly on Tuesday—at one point jumping by up to 65% after hedge fund D.E. Shaw disclosed a more than 5% stake in the company.

KEY FACTS

D.E. Shaw, a $50 billion hedge fund based in New York, disclosed through a filing with the Securities and Exchange Commission on Monday night that it has a 5.2% passive stake in Kodak.

Shares surged by up to 65% in early trading on Tuesday, hitting a session high of nearly $10 before retreating to around $7.50 for a gain of over 25% by the afternoon. 

Kodak’s stock has been extremely volatile over the last month: It initially surged from around $2 per share to $60 per share in late July after President Trump announced a $765 million government loan to help the company pivot into drug production.

The stock was also so volatile that the day after the announcement on July 29, as more than 100,000 retail investors began adding it to their Robinhood accounts, it was halted 20 times.

Shares of Kodak also jumped 25% a day before the loan was even announced on July 28, sparking the attention of the Securities and Exchange Commission (SEC) which is now looking into the circumstances of the deal.

The government loan was sidelined following regulatory and congressional scrutiny, causing shares to crater: The stock has declined steadily since its peak on July 29, and is down 75% despite D.E. Shaw’s recent disclosure.

What to watch for

D.E. Shaw is a quantitative trading firm, which means its new position in Kodak could simply be a short-term trading bet. Many quantitative firms similarly buy and sell stocks for the short term, meaning that D.E. Shaw’s stake in Kodak doesn’t necessarily reflect its long-term view of the company’s growth prospects.

Crucial quote

White House trade advisor Peter Navarro blasted Kodak executives earlier this month for their handling of the loan announcement. “Based on what I’m seeing, what happened at Kodak was probably the dumbest decision ever made by executives in corporate history,” he told CNBC on August 17.

Key background

The $765 million loan awarded to Kodak was the first of its kind under the Defense Production Act, with the goal of helping the company, which has been historically focused on photography, to pivot to drug production. Kodak’s stock plunged by more than 40% on August 10, however, after a federal agency said it would withhold the $765 million loan. “Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared,” the U.S. International Development Finance Corporation (DFC) said in a statement about the deal. 

Tangent

Lawmakers like Senator Elizabeth Warren (D-Mass.) have also called for investigations into why the loan was granted to Kodak in the first place. “The fiasco surrounding the decision to offer, then revoke, the Kodak loan also raises larger questions about corruption, nepotism, and mismanagement in the Trump Administration’s response to COVID-19,” she wrote to in a letter to the Pandemic Response Accountability Committee on August 20.

Further reading

What’s Happening To Kodak Stock? Shares Plunge Over 40% After Government Loan Is Held Up On Allegations Of Wrongdoing

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