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 user 2006-10-19 at 1:37:00 pm Views: 37
  • #16807

    Deal to help Danka dig out
    The new CEO said
    selling its European branch is the “first mountain” the firm must
    climb to get out of debt.

    oct, 2006 In a deal that effectively shrinks Danka
    Business Systems in half, the St. Petersburg office-equipment distributor said
    Thursday it will sell its European operations to a Japanese competitor for
    $210-million and use the cash to slash its heavy debt load.Ricoh Co. of Tokyo,
    whose photocopiers dominate the European market, will absorb Danka’s sales and
    service networks into its own. Danka chairman and CEO A.D. Frazier said the
    deal will significantly reduce the roughly $30-million his company spends
    annually on interest payments and help it focus more resources on its U.S.
    operations, which include 54 offices in 13 targeted markets. “Selling half
    the company is not something I enjoy doing every day,” Frazier said
    Thursday in an interview from Tokyo. But “we’ve taken a huge step in
    saving this company from serious travail by selling these assets… It’s a good
    thing for Danka, it’s a good thing for our shareholders, and it’s a good thing
    for the St. Petersburg
    community.”Thursday’s deal comes nearly a decade after Danka’s
    once-expansionist leaders bought Eastman Kodak’s copier-service arm. While the
    transaction nearly tripled Danka’s revenues to $3.5-billion and doubled its
    worldwide head count to 22,000, it was later blamed for Danka’s long-term
    decline. Roughly half of Danka’s fiscal 2006 revenues of $1.1-billion and
    4,500-person global staff will disappear when the Ricoh deal closes. Frazier
    said Ricoh was the only suitor to propose buying all of Danka’s European
    operations, and the “logical bidder” because a majority of the
    photocopiers Danka sells in Europe are made by Ricoh.The companies’ pact is a
    feather in the cap for Frazier, 62, who joined Danka in March and characterized
    the company Thursday as “sort of a capital-structure problem child.”
    He said the first $175-million in proceeds would be used to pay off all of its
    11 percent senior unsecured notes, which are scheduled to mature in 2010, and a
    large chunk of the roughly $65-million in 10 percent subordinated notes due in
    2008. “This is the first mountain to climb,” he said.The second
    mountain will be satisfying Danka’s largest shareholder, Cypress Group LLC of
    New York.

    The private-equity
    group sank $200-million into Danka in late 1999 in return for convertible
    preferred stock, an annual dividend of 6.5 percent and two seats on Danka’s
    board. But Danka’s low stock price – it closed Thursday at $1.87 per share, up
    two pennies – has prevented Cypress from converting its preferred stock.
    Danka’s finances also have forced it to pay Cypress’ dividends in the form of
    additional preferred stock rather than cash.”We’ll negotiate with
    them,” said Frazier, who added that Cypress strongly supports the Ricoh
    deal. “We’ll find a way.”Frazier said he and his wife have grown to
    love St. Petersburg since moving there this year and that Danka’s headquarters
    staff, currently at a lean 300, probably will not suffer further cuts. The
    company’s U.S. sales force, meanwhile, will receive additional training and
    equipment. Danka recently expanded its domestic sales staff by 8percent and
    expects to add more as finances permit.”I look at these people who’ve
    busted their cans for years,” Frazier said. “This (deal) is an
    opportunity to stop struggling and get ahead of the game.”