NEW YORK (CNN/Money) -
FedEx Corp. Tuesday agreed to buy Kinko's, the business services retailer, for $2.4 billion in cash in a bid to better compete with United Parcel Service Inc.
FedEx will buy Kinko's from Clayton, Dubilier & Rice, a global investment firm, which owns about 75 percent of Kinko's closely held shares.
"The FedEx and Kinko's combination will substantially increase our retail presence worldwide and will enable both companies to take advantage of growth opportunities in the fast-moving digital economy," said Frederick W. Smith, CEO of FedEx Corp.
The purchase will allow FedEx, the world's largest overnight package deliverer, to offer shipping services in all 1,200 Kinko's stores. FedEx, Kinko's shipping provider since 1988, now operates counters in 134 Kinko's stores.
"The purchase allows each company to expand in the other's areas of strength," Donald Broughton, transportation analyst at A.G. Edwards in St. Louis, who has a "hold" rating on FedEx shares, told Reuters. "It should be a good marriage."
FedEx's acquisition follows UPS' (UPS: Research, Estimates) purchase of shipping and copy chain Mail Boxes Etc. in a move to better target consumers and small businesses. UPS expanded that chain to more than 4,000 stores and is rebranding it.
With about $2 billion in annual revenue, Kinko's has grown from about 127 outlets when Clayton Dubilier first invested $220 million in it in 1996. Its stores are company-owned, in contrast to the mostly franchised Mail Boxes.
FedEx (FDX: Research, Estimates) said the deal will add to earnings with the fiscal year that starts June 1, 2004 but its stock fall Tuesday.
FedEx, which operates in 215 countries, said it "plans to significantly expand" the global reach of Kinko's stores and offer "new or expanded" shipping options at Kinko's stores.
"The Kinko's acquisition will help diversify the FedEx revenue base, driving better value for our shareholders," said FedEx Chief Financial Officer Alan B. Graf Jr.
"That UPS Store really has been very successful; it put UPS closer to individual consumers and small-to-medium business consumers," said Arthur Hatfield, an analyst with Morgan, Keegan & Co. "FedEx really needed to be closer to the consumer in that way, and I think this deal is in response to that."
Neither Hatfield nor Morgan Keegan own any shares of FedEx, and the firm has no banking relationship with FedEx.
Earlier this month, several analysts downgraded FedEx shares after the company reported fiscal second-quarter earnings that missed Wall Street estimates, and some analysts cited concern about FedEx losing shipping business to UPS.
Goldman Sachs and J.P. Morgan advised Kinko's in the deal, while Merrill Lynch advised FedEx.
-- Reuters contributed to this report