FedEx to buy Kinko's

Posted: Wednesday, December 31, 2003

MEMPHIS, Tenn. FedEx Corp. agreed to buy copy-shop chain Kinko's for $2.4 billion as the shipping giant attempts to extend its reach into retail markets and gain ground on rival UPS.

The cash deal, announced Tuesday, will put FedEx operations in Kinko's 1,200 stores across the United States and abroad.

''This is a very significant entry into the small office/home office market ... which is a market FedEx has been trying to grow into for many years,'' said Jeffery Kauffman of Fulcrum Global Partners LLC.

Buying Kinko's puts FedEx on more even footing with UPS.

UPS bought Kinko's competitor Mail Boxes Etc. in 2001 and this year said it would rename its 3,300 storefronts The UPS Store.

''UPS when they acquired Mail Boxes Etc. put themselves in a pretty good position to get closer to the retail customer,'' said Art Hatfield of Morgan Keegan & Co. ''For FedEx to reach out to retail consumers more effectively, they needed to do something like this.''

FedEx chair and president Frederick W. Smith said the deal should bolster the fastest-growing segment of its business: ground shipments that compete directly with UPS.

''Kinko's 1,200 locations will provide a lot of access for people who want to pack and ship. It's particularly important to FedEx Ground,'' Smith said.

Still, some analysts questioned the price tag.

''Strategically, I think (Kinko's) is a good business and a smart fit. Where we scratch our heads is the price paid for it,'' Kauffman said. ''On the surface, the price would appear a bit steep.''

FedEx shares fell 94 cents to close at $69 on the New York Stock Exchange, while UPS shares dropped 66 cents to $74.15.

Kinko's, the leading provider of copying and other business services, has annual revenues of $2 billion and a large amount of cash, FedEx said.

FedEx runs the world's largest cargo airline, FedEx Express, as well as FedEx Ground trucking operations for business to business and home deliveries. Memphis-based FedEx already has drop boxes at Kinko's and full counter services at 134 stores.

The buyout firm of Clayton, Dubilier & Rice Inc. now owns 75 percent of Kinko's. The rest is owned by JP Morgan Partners and current and former Kinko's employees and officers.

The deal is expected to be completed in the first quarter of 2004.



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