A "stalking horse" bid is used as a starting bid or minimally accepted offer that other interested bidders must surpass if they want to buy the company.

Shutterfly shares rose 18 percent to $31.70 in extended trade, following the news. The stock had closed at $26.91 on Thursday on the Nasdaq.

The company said it will transfer Kodak Gallery customer accounts and images in the U.S. and Canada to Shutterfly, and will allow customers to opt out of the transition if they do not want their photos to be transferred.

Kodak is focusing its consumer business on retail and destination photo solutions as well as home printing products, said Pradeep Jotwani, president, consumer businesses and chief marketing officer of Kodak.

Kodak Gallery -- which enables users to store and share their own images and create custom printed photobooks, cards and albums -- has more than 75 million users.

Shutterfly, which boasts of millions of customers, bought privately held card design company Tiny Prints in a $333 million cash-and-stock deal last year.

It competes primarily with services like Hewlett Packard's Snapfish, Kodak's EasyShare Gallery and American Greetings' Photoworks and Webshots brands. (Reporting by Supantha Mukherjee in Bangalore; Editing by Anil D'Silva)

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