Eastman Kodak Co, which filed for bankruptcy in January, said it has agreed to sell its on-line photo services business to stalking horse bidder Shutterfly Inc for $23.8 million.

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 -- which enables users to store and share their own images and create custom printed photobooks, cards and albums -- competes primarily with services like Hewlett Packard's Snapfish, Kodak's EasyShare Gallery and American Greetings' Photoworks and Webshots brands.

Under the deal, Kodak will transfer Gallery customer accounts and images in the U.S. and Canada to Shutterfly.

Shutterfly shares rose 13 percent to $30.51 in extended trade. The stock closed at $26.91 on Thursday on the Nasdaq.

(Reporting by Supantha Mukherjee in Bangalore; Editing by Anil D'Silva)

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