An Acquisition That Makes Sense: FedEx to Acquire Kinko's Article from January-March 2004 issue of Business Strategies Newsletter By Bill Birnbaum, CMC FedEx has agreed to acquire Kinko's for $2.4 Billion – $2.2 Billion in cash and assumption of $200 Million in debt. Through this acquisition, FedEx is hoping to attract more customers in smaller and mid-sized companies. Through its 1,200 retail outlets, Kinko's serves as the “office away from the office” for home businesses, small businesses and on-the-road employees. As such customers ship only occasionally, they lack the bargaining power of larger shippers and thus pay higher shipping fees. This therefore represents a very lucrative market for FedEx. By one estimate, smaller, occasional shippers pay 10% more to send packages by ground transportation. In part, the FedEx acquisition of Kinko's is designed to counter UPS’ 2001 acquisition of Mail Boxes Etc. That acquisition gave UPS access to a whopping 4,500 retail outlets nationwide. While Kinko's 1,200 locations will offer FedEx far fewer retail outlets than UPS’ 4,500 through Mail Boxes Etc., FedEx estimates it could double the number of Kinko's locations. And while Kinko's doesn’t yet offer mail box service, FedEx is considering just such an addition. This addition of mail box service is important. For while they ship packages only occasionally, customers of Mail Boxes Etc., stop by to check their mail daily, or almost daily. Kinko's retail outlets offer a number of significant advantages over Mail Boxes Etc. For one, customers visit Kinko's for a number of reasons other than shipping packages. They make copies of documents, books, booklets, manuals and banners. They rent computer time and, most recently, stop by to send and receive e-mail – thanks to Kinko's’ new wi-fi wireless service. Indeed, customers have many reasons to visit a Kinko's outlet. Also, Kinko's outlets are far larger and more business-like. And with the planned addition of mail box service, Kinko's outlets should have significant advantages and no disadvantages as compared to Mail Boxes Etc. While some on Wall Street wonder if the $2.4 Billion purchase price is too much, we’re inclined to trust FedEx payback calculation. For FedEx has “tested the waters.” The company has offered delivery service through Kinko's outlets since 1988. This includes full service counters at 134 stores. As regular readers of this newsletter know, we’re critical of many corporate acquisitions. But we applaud this one. As the old saying goes, “time will tell.” Let’s keep our eye on FedEx-Kinko's over the next couple of years.    Originally published in Bill Birnbaum's Business Strategies Newsletter