Print

Email story

Comment

Email editor

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.

By SCOTT BARANCIK
Published October 13, 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."

Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

[Last modified October 12, 2006, 23:41:01]