Danka sprints ahead on $680m Kodak deal

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The Independent Online
Shares in Danka Business Systems soared 85p to 560p after the company confirmed it was buying Eastman Kodak's office imaging and facilities management business for $684m in cash.

The business resulting from the acquisition will create the largest independent office equipment company in the world, offering global coverage in office products and services with more than 700 offices in 35 countries. The deal will bring Danka's annual sales to around $3.5bn and will double its recurring revenue stream from service, supplies and rentals to more than $2bn.

Danka said the deal also put it in a leading position in fastest-growing end of the market - photocopiers capable of handling a high number of pages per minute, which account for 43 per cent of the North American market. Kodak is one of only three manufacturers of high-volume photocopiers and the only one to allow distribution by third parties.

Danka entered the high-volume market in September 1995 when it agreed to distribute Kodak products in North America. That agreement laid the ground work for the acquisition.

"We got to know their people, their very fine service," said Mark Vaughan- Lee, Danka's chairman. "When Kodak announced in January that it was seeking to reposition its office imaging business, we registered our interest. We were not alone."

Unlike Kodak, Danka does not manufacture photocopiers and was interested only in the marketing, sales and service side. In addition, the acquisition will allow Danka to offer its customers a full range of products and service. "We'll be able to jointly go to customers and offer the full range of machines, the full range of service," Mr Vaughan-Lee said.

Danka will also set up a strategic alliance with Kodak, under which Kodak will supply high-volume copiers and printers to Danka, which will become the principal distributor of Kodak-branded office copiers and printers.

Danka said it would take a one-off restructuring charge of $25m-$35m on the deal in its third-quarter results for integration of the Kodak acquisitions but the purchase should be earnings-enhancing in the first 12 months of operations.

The acquisition will be funded with bank debt under a six-year, $1.2bn fully underwritten commitment, which will also refinance Danka's debt and revolving credit facilities.

Dan Doyle, Danka's chief executive, said the transaction and the alliance with Kodak, which is keeping its manufacturing businesses in copiers, would give Danka a full line of products to compete against market leader Xerox Corp.

Danka's shares, as high as 848p earlier this year, had been in the doldrums since the company warned in June that first-quarter earnings would be below market expectations. That news sent the shares diving to a 12-month low of 388p.

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