FedEx/Kinko's deal raises questions

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FedEx Corp.'s recent acquisition of Kinko's 1,200 global retail locations for $2.4 billion in cash has raised questions about the deal's strategic fit.

FedEx's archrivals UPS and DHL have been making great strides in building more comprehensive global networks that include freight forwarding and ground operations outside the U.S., says Morgan Stanley's James Valentine. These are areas where FedEx has less of a presence, he points out.

FedEx formed an alliance with Kinko's in August 2000 when the two teamed up to offer time-definite document printing and finishing with same-day and next-day delivery. FedEx has also used Kinko's locations as drop points for envelope and parcel shipments.

The current move to acquire Kinko's was represented as providing better access to small- and medium-sized businesses and mobile professionals.

UPS purchased Mail Boxes Etc.'s 4,000 retail locations in 2001 for $185 million with similar goals in mind, Valentine notes. UPS recently re-branded those locations The UPS Store.

The two deals differ significantly. In 2001 when UPS purchased Mail Boxes Etc., it paid just over $40,000 per location. Mail Boxes Etc.'s primary business model at the time was the receipt and shipment of mail and packages.

FedEx's purchase of Kinko's will cost the company $2 million per location. Kinko's business model has been to provide document services.

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February, 2004

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