FedEx Agrees to Buy Kinko’s for $2.4 Billion

Shipping giant FedEx Corp. said Tuesday that it had agreed to buy copy-shop chain Kinko’s for $2.4 billion in cash to gain a longer reach into retail markets and help it compete with major rival United Parcel Services Inc.

The purchase, expected to be completed in the first quarter of 2004, would put FedEx counters in Kinko’s 1,200 stores across the United States and abroad.

Memphis-based FedEx already has drop boxes at Kinko’s and full counter services at 134 stores.

Buying Kinko’s puts FedEx on a more even footing with Atlanta-based UPS, which bought Kinko’s competitor Mail Boxes Etc. in 2001 and this year said it would rename the chain’s 3,300 outlets the UPS Store.

Frederick W. Smith, FedEx chairman and president, pointed out the advantages of the acquisition to the fastest-growing segment of FedEx’s 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 [services],” Smith said.

Kinko’s has more than 110 stores overseas, and FedEx said it planned to “dramatically expand” that international business.

Still, some analysts questioned the price tag, and investors sent FedEx shares lower.

“Strategically, I think [Kinko’s] is a good business and a smart fit. Where we scratch our heads is the price paid for it,” Jeffery Kauffman of Fulcrum Global Partners said. “On the surface, the price would appear a bit steep.”

But “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,” Kauffman said.

FedEx shares fell 94 cents to $69 on the New York Stock Exchange, where UPS shares fell 66 cents to $74.15.

Private-equity firm Clayton, Dubilier & Rice Inc. owns 75% of Kinko’s. The rest of the firm is owned by J.P. Morgan Partners and current and former Kinko’s employees and executives.

Kinko’s, founded in Santa Barbara in 1970, is the leading provider of copying and other business services, with annual revenue of $2 billion. The company’s headquarters were in Ventura until 2001 when Clayton Dubilier moved them to Dallas.

FedEx runs the world’s largest cargo airline, FedEx Express, as well as FedEx Ground trucking operations for business-to-business deliveries and home deliveries.

Half of Kinko’s business comes from small to medium-size companies and 30% from walk-in customers, said Kinko’s Chief Executive Gary Kusin, who will remain in that position and report to Smith.

FedEx said the Kinko’s acquisition would begin to add to its bottom line this summer.

David Wasserman, a partner in New York-based Clayton Dubilier, said the firm had expected to take Kinko’s public late next year, until FedEx approached it last month.

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Reuters was used in compiling this report.