FedEx to acquire Kinko's for cash

$2.4 billion deal lets it add copy firm's 1,200 outlets


FedEx Corp. said yesterday that it had agreed to acquire Kinko's, the privately held copy center operator, for $2.4 billion in cash in an effort to win more small business customers and enhance its competitive position with United Parcel Service, its main rival.

FedEx is buying Kinko's from Clayton, Dubilier & Rice, the private equity firm that controls the company. A fund managed by Clayton, Dubilier made its first investment in Kinko's in 1996, when it acquired a 29.6 percent equity stake in the company. The firm now holds a 75 percent stake.

Kinko's operates roughly 1,200 stores worldwide and estimates that its annual revenue is about $2 billion as of the end of this year.

FedEx's relationship with Kinko's stretches back to 1988, when it became Kinko's exclusive shipping provider. FedEx already staffs counters in 134 Kinko's stores.

After the purchase, FedEx will have full-service counters in all Kinko's stores.

"The FedEx and Kinko's combination will substantially increase our retail presence worldwide and will enable both companies to take advantage of growth opportunities in the fast-moving digital economy," said Frederick W. Smith, FedEx's chairman, president and chief executive. "Our two companies share a similar background, culture and customer focus, and that common ground is extremely important as we prepare for future growth and success."

Kinko's plans to significantly build on its 110 international locations, concentrating on growth opportunities in Asia, North America and Europe.

FedEx, which serves 215 countries around the world, said it would use its own global expertise to aid in the international expansion.

FedEx said the transaction, which will likely become final in April, is not expected to have a material impact on its financial results in fiscal 2004. But the deal is expected to add to its to earnings in fiscal 2005, which begins June 1, 2004, the company said.

Donald Broughton, an analyst at A.G. Edwards in St. Louis, sounded skeptical that Kinko's would provide much immediate help to the FedEx bottom line.

"Fred Smith is a visionary guy," he said. "Right now he is imagining becoming the back office for a host of small and medium-sized businesses."

But Broughton added, "The unfortunate thing is that, while he is a visionary, being the leading edge is also often the bleeding edge for the stock."

While seeking to expand and diversify its own business base, analysts said that in some respects the Federal Express purchase is a defensive reaction to the recent acquisition by UPS of Mailboxes Etc. UPS is changing the name of Mailboxes Etc. locations to the UPS Store to sell shipping services to small businesses.

UPS bought Mailboxes Etc. in April 2001 for $185 million. At the time of the purchase, Mailboxes had more than 4,300 stores. UPS began upgrading the Mailboxes stores over the summer.

"I would call this a response, not a reaction [to UPS]," Broughton said. "By itself, the UPS acquisition of Mailboxes, which was a struggling franchise, was benign. The re-branding that started this summer gave Mailboxes new life."

FedEx, based in Memphis, Tenn., said it planned to retain most if not all of the more than 20,000 employees who work for Kinko's. It also said that Kinko's management was expected to remain in place and that the company's headquarters would remain in Dallas.

Kinko's was founded in 1970 when Paul J. Orfalea, a recent college graduate, borrowed money to open a photocopy shop in Isla Vista, Calif. He called it "Kinko's" after the nickname his college friends gave him in recognition of his curly, reddish hair.

FedEx shares declined 94 cents to close at $69 yesterday.

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