FedEx agrees to buy Kinko’s

MEMPHIS, Tenn. — Shipping giant FedEx Corp. agreed to buy copy shop chain Kinko’s for $2.4 billion to gain a longer reach into retail markets and help it compete with major rival UPS.

The cash purchase, expected to be completed in the first quarter of 2004, 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.

Atlanta-based 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."

Frederick 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," 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," 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, where UPS shares fell 66 cents to $74.15.

But Kauffman said he regards FedEx as a well-run corporation.

"I’m going to give them the benefit of the doubt and assume there’s something they’re just not telling us now," he said.

Kinko’s is the leading provider of copying and other business services, has annual revenues of $2 billion, and is cash fat, 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.

FedEx said it was particularly impressed with Kinko’s recent growth in digital services and its place as an "office away from home" for traveling executives, offering computer access, meeting rooms and other such services.

"We currently are the ‘back office’ for hundreds of thousands of midsize businesses in copying, printing and computer services," said Kinko’s chief executive Gary Kusin, who will remain in that position and report to Smith.

Joining FedEx will make Kinko’s "a one-stop back office," Kusin said.

Half of Kinko’s business comes from small to medium companies and 30 percent from walk-in customers, Kusin said.

Hatfield said FedEx wants more of those kinds of customers.

"You could do it one of two ways. Build your own stores or buy somebody who’s already got a footprint," Hatfield said.

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

Kinko’s, which will become the fourth operating company for FedEx, will maintain its Dallas headquarters. No decision has been made on whether Kinko’s will keep its company name.