Smile, Polaroid, you could be a fetching takeover target

When you say ``cheese'' and click your camera shutter at a group of smiling friends, just remember, the battle to record the happiest moments of your life has never been more fierce. Take Polaroid, for example, whose stock is riding high on rumors that it might reap a billion-dollar windfall in a court judgment against its big yellow archrival Kodak.

Polaroid won its patent-infringement suit against Kodak in 1985 for muscling in on Polaroid's instant-photography business. Last month it argued it should receive $3.2 billion from Kodak in lost film and camera sales, and $2.5 billion in lost opportunities to develop new products.

Polaroid's stock surged anew last week as Wall Street analysts combing through newly released court papers broadly concluded that even though Polaroid may not get all of what it wants, its arguments appear strong enough to walk away with pockets full.

But even if Polaroid cashes in, it may be nothing more than a luxurious consolation prize - which may already have attracted the attention of corporate raiders.

``It's a very good chance they could be a takeover candidate,'' says David Presson, an analyst with Edward D. Jones & Co., a St. Louis brokerage. A cash settlement could cause Wall Street sharks to circle around Polaroid's valuable real estate, inventories, hard assets, well-known name, trademarks, and patents. Polaroid has virtually no long-term debt.

Some analysts speculate that Fuji, the relatively new and highly successful Japanese entrant onto the United States photography scene, might also be attracted to Polaroid.

``There has been talk of Fuji taking over,'' says Raymond Cowen, an analyst with Value Line investment survey. ``Fuji would gain the Polaroid name, its distribution channels, and a monopoly on instant photography.''

Despite strong sales last year of its new Spectra series instant camera, Polaroid's long-term outlook is lackluster, a number of analysts say. The key problem is that instant photography is sliding. Sales of instant cameras and film have declined in recent years as the popularity of autofocus 35 mm cameras has grown.

Of the new-generation cameras: ``Any idiot can point and shoot in any sort of light and have a very good print,'' says Robert Maney, an analyst with Prudential-Bache Securities. The advantage of having a Polaroid instant picture appears also to be undercut by one-hour minilabs that have sprung up.

Although Polaroid has tried to diversify into products such as videotape, its options to enhance profits appear limited, barring a spectacular breakthrough in an area like electronic photography, several analysts say.

Kodak, Polaroid, and several Japanese companies are known to be racing to develop cameras that use no chemical film, but save an electronic image that can be reproduced on a television set at home.

``Polaroid has already got plenty of money, and getting an award from Kodak is not going to put them into a more competitive position than they are in right now,'' says Mr. Cowen.

He echoes the view of other analysts who, in spite of seeing Polaroid's stock value rise from the low 20s to the mid-30s in only a month, see it struggling in the three-way race among it, Kodak, and Fuji. ``Certainly their operations have not been good,'' Cowen complains. ``Last year's results were far from heartening.''

Kodak, on the other hand, even though it has been hit hard by a series of bad announcements, remains fundamentally strong and in a better competitive position than at any time in recent years, analysts say. It has begun to turn out new products at an unprecedented (for Kodak) rate of about 200 in the past two years. Since about 1983 Kodak has been less smug as big No. 1 - and has cut red tape, trimmed expenses, upgraded plants, and brought new products like its disposable camera to market in just six months.

Kodak's recent stock price slide is seen as a short-term phenomenon. ``Within a period of 30 days Kodak got hit with every piece of bad news conceivable,'' Mr. Maney says. ``I couldn't believe it.''

Not long after Polaroid announced it would seek $5.7 billion in damages, Kodak said its innovative nine-volt lithium battery needed more work to give it the 10-year shelf-life that was claimed for it. The company was also criticized heavily for paying too much to acquire the Sterling Drug company.

``Once this is behind it, and Kodak has shown it can assimilate Sterling Drug well, investors are going to focus on the company's inherent strengths.'' The battery besmirchment is a short-term problem, he says.

Kodak's competitor of the future appears to be Fuji, which has racked up about 10 percent of US film sales and just keeps on rolling. Fuji is offering several new products, including the $13.95 Fuji Quicksnap Flash. Its summer debut is timed for vacationers who don't want to take expensive cameras to the beach.