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Danka puts key unit up for sale to reduce debt

Once again, Danka is considering selling its "crown jewel'' to work its way out of trouble. A similar deal fell through in the summer of 1999.


© St. Petersburg Times, published February 21, 2001

ST. PETERSBURG -- In a desperate measure to pay off some of its debt, Danka Business Systems plans to sell off a unit it once deemed a "cornerstone" of its future growth.

The St. Petersburg photocopier distributor plans to use funds from the sale of its outsourcing business, Danka Services International, to pay off holders of $200-million worth of short-term notes.

If short-term noteholders buy into the plan and a sale is completed, Danka executives think they will be able to appease banks who hold $550-million in senior debt due a year from now.

"We looked at multiple alternatives and this is the plan we have picked," said P. Lang Lowrey III, Danka's new chief executive, in a media briefing late Tuesday.

Danka, which has lost $93-million in the past nine months, could be forced into bankruptcy protection if it is unable to win concessions from lenders by the end of March. That pressure gave Lowrey, who took over the reins of Danka last week, little time to settle on a turnaround plan.

Danka Services International (or DSI), a unit that runs corporate copy centers, has been described as a "crown jewel" by Danka executives.

Yet this isn't the first time Danka has tried to peddle the unit to work its way out of debt.

Two years ago, during a previous restructuring, Danka was close to selling a 90 percent stake in DSI for $300-million.

That deal with London buyout specialist Schroders Ventures fell through in the summer of 1999 after it appeared DSI would lose one of its top customers, IBM. Since then, IBM has renewed its DSI contract and that fear is no longer a concern, Danka officials said.

Danka officials did not say how much the subsidiary could fetch this time, but Lowrey said he is talking with several potential buyers. He hopes to complete a sale and finalize the restructuring plan by June 1.

DSI, a relatively high-margin service, links up corporate printers, computers and copiers by a network and manages them.

The unit accounts for roughly $282-million of Danka's $2.5-billion in annual revenues.

Many of DSI's 3,600 employees are in the Rochester, N.Y. area; only a handful of employees in a St. Petersburg copy center would be affected.

Under the restructuring plan, funds from a DSI sale would be used in part to pay off holders of $200-million worth of 6.75 percent convertible subordinated notes due April 1, 2002.

Noteholders have three options:

cash out the notes for 40 cents on the dollar for the noteholders' outstanding principal.

convert the notes to 9 percent notes payable in 2004, which translates to about 50 cents on the dollar.

or convert the notes to 10 percent notes payable in 2008, the only option offering noteholders 100 cents on the dollar.

Up to $40-million will be set aside for the cash-out option.

At least 95 percent of noteholders have to sign off on the plan for Danka to move forward.

Lowrey, an Atlanta businessman experienced in turning around troubled companies, acknowledged that the plan is a delicate one requiring multiple approvals from lenders as well as securing a DSI buyer.

But he portrayed Danka's long-term prospects as promising. "The reason for fixing this is to move on to build a new Danka," he said.

The plan was disclosed after markets closed Tuesday. Delisted from Nasdaq National Market last year, Danka now trades below $1 a share. Shares closed unchanged Tuesday at 78 cents.

- Contact Jeff Harrington at or (813) 226-3407.

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