Ricoh/IKON - Words from the Source on Why and How IKON will be "Integrated"

Comments made by Ricoh's President and CEO Shiro Kondo and CFO Zenji Miura regarding the acquisition.

I ran across an article from Tech-On, News - Straight from Asia written by Tomohiro Ootsuki, Nikkei Electronics.

Ricoh illustrates it's position on many aspects of the a IKON purchase - not one is surprising.

The text is derived from direct translation so I paraphrased a summary of the comments:

The purpose of the buyout -

-to strengthen the sales force in the North American market by assuming and penetrating IKON's Fortune 500 customers

-to reinforce the service business by realizing IKON's profits from its Professional Services and printing-related activities which currently accounts for 19% of the company's sales.

The reason for strengthening the service business -

Here's the direct quote:

"Ricoh has been providing merits to its customers through hardware. However, those merits are shrinking every year. In addition, customer needs are changing. They are now asking not only the useful functions of copy machines and multifunction copy machines but also advanced services such as the improvement of workflows and security.

One of the collateral evidences is the sales of our small-size multifunction copy machines that support A4 paper size. They are being used less widely than expected in developed countries, aside from emerging countries. We aim to deeply cultivate the markets in developed countries by the service business.

We will never give up the basic principle of manufacturing industry – making hardware with great care. On that premise, we want to be a company that provides software services. That's why we will put in resources to reinforce our service business"

My interpretation - Ricoh's customers and prospects are changing. IKON provides Ricoh with additional "merits". And Ricoh intends to expand services in the developed countries. Ricoh intends to utilize the PS assets of IKON to support hardware sales.

The relationship with Canon -

"Sixty percent of IKON's sales are coming from Canon Inc's products, and our products account for about 30% of the sales. We do not think that the percentage of Canon will continue to stay at that level, but we will try to keep it. For that purpose, we have to prevent IKON's top executives and customers from falling away."

Ricoh just killed most of Canon's US sales. And they are worried that executives and customers will leave IKON, but Ricoh will "try" to maintain Canon sales, top executives and customers - duh...

The earnings estimate -

"Our annual sales will increase by about ¥400 billion (US$3,669 million). In respect to the operating profit, we do not expect that IKON will turn a profit soon after it becomes part of the Ricoh Group because there will be an opportunity loss. But, for the future, we want to double IKON's operating profit posted in September 2007 to achieve an operating profit margin of 10%."

Yahoo! For those who stayed and didn't perform - you get a reprise. Expectations have just been lowered.

The integration plan -

"Though we will consolidate the back-offices (administrative departments), IKON and Ricoh Americas will continue to be independent companies. The sales figures and the number of employees of IKON are larger than those of Ricoh Americas.(see RiKon - "Really, I Knew One Name...")

We will work out an ideal structure of the companies while making consideration to IKON.

If it becomes clear in the future that it is more rational to integrate the sales and service networks of IKON and Ricoh America, we will do that."

For now, looks like business as usual. (see Words From IKON's Espe - Internal IKON Memo

The business environment for distributors -

"It is now at an inflexion point. These days, it is not easy to sell new models of copy machines and multifunction copy machines just by introducing them to the customers.

Even if a distributor has an edge over its competitors in certain geographical areas, it can lose orders because multinational companies prefer to call bids for copy machines to be used in their offices scattered around the world. So, we also have to become powerful system integrators.

Under those circumstances, independent distributors are planning new strategies, one of which is a sellout. Before our purchase of IKON, Xerox Corp bought Global Imaging Systems Inc and Konica Minolta Business Solutions USA Inc acquired Danka Office Imaging Co."

Ok, I have really no idea what is meant here, or more precisely, the above statement could mean dozens of things or nothing.

Other comments-

· "The press conference took place late at night in Japan to make the announcement in London, New Jersey and Tokyo at the same time.

· The buyout was proposed by IKON in about April 2008. At that time, Ricoh, just after finishing integrating information systems around the world in 2007, was about to go on an offensive.

· The amount of money sourced from external funds will be about ¥170 billion (approx US$1,559 million), equivalent to the amount paid for the acquisition, because the corporate bonds that we have already issued will soon mature."

Interesting that IKON approached in April(see Excerpts From Espe, July 27, 2008).

My Summary:

1. Ricoh sees a great value in the PS and Service side of IKON to enhance their already superb manufacturing skills
2. Ricoh will let IKON function as a separate entity - unless things go badly
3. Ricoh knows the assimilation is huge
4. IKON "shopped" themselves out

No surprises.

Other Words:

Ricoh to Buy IKON - Shot Heard Around the World

IKON "...you're Stock is Rising..."

Canon Copier Profit Down 12%

Excerpts From Esp