*NEWS*DEAL TO HELP DANKA DIG OUT

[Anonymous]

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.”

[Author]

October 19, 2006 at 1:37 PM