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By DANA CANEDY
Published: September 10, 1996
The Eastman Kodak Company and Danka Business Systems P.L.C. announced yesterday that Danka would acquire the sales, marketing and equipment service operations of Kodak's office copier business for $684 million in cash.

The deal would allow Kodak to shed its strategically unimportant and marginally profitable Office Imaging business while making Danka a much larger player in an industry that has been consolidating.

Danka would be the principal distributor of Kodak-branded office copiers and printers, but Kodak would retain its manufacturing operation. Analysts said the company would have preferred to dispose of the manufacturing business as well.

Eugene G. Glazer, an analyst with Dean Witter Reynolds, said: ''I don't think this is the ideal deal for them. What they are selling is the profitable part of the division and what they are keeping is the unprofitable part.''

But the money Kodak could earn on the proceeds of the sale could be greater than the profits they are giving up, he said, ''so on the bottom line, this will be a contributor to profits.''

''It is a business they have done very poorly in for many years,'' Mr. Glazer said. ''They have generally been late to market with new products, have had, over time, reliability problems with new products and they have been up against a resurgent Xerox.''

Danka, which agreed to assume certain assets and operating liabilities, intends to offer global coverage in office products and services with more than 700 offices in 35 countries. Some 10,400 Kodak employees would be offered jobs at Danka; 6,000 of them the United States. The business Danka plans to acquire had net earnings before taxes of $20 million last year on revenues of $1.8 billion.

Danka, a London-based supplier of office equipment, supplies and services with United States headquarters in St. Petersburg, Fla., would become the one of the largest copier companies, but would still be well behind the Xerox Corporation, the industry leader. Upon completion of the transaction, expected by the end of the year, Danka's sales will be approximately $3.5 billion.

Daniel M. Doyle, Danka's chief executive officer, said, ''This strategic alliance will allow Danka to offer customers a unique combination of unparalleled service and support with global coverage.''

Wall Street was enthusiastic. Danka's American depository receipts rose $6.625 to close at $36.50, in trading of 3.35 million receipts, three times Danka's daily average.

Kodak stock slipped 50 cents, to $71.75, on the New York Stock Exchange. Kodak, which has been trying to sell the division since January, in order to concentrate on its core photography and digital-imaging businesses, expects to take a book loss of $250 million after taxes but said net cash proceeds from the deal would be $600 million.

Carl F. Kohrt, Kodak's assistant chief operating officer, said, ''This alliance promises to increase access to the market for Kodak-branded office imaging products.''

Danka is continuing an aggressive growth strategy. Its past purchases of mom-and-pop copier distribution concerns enabled Danka to grow into a very successful organization on the local and regional level, Alexander B. Henderson, an analyst with Prudential Securities Research, said. ''What they didn't have was a national sales organization targeting Fortune 500 accounts,'' he added.

Meanwhile, Xerox maintained that the Danka-Kodak deal would provide opportunities, not a threat. Carlos Pascual, president of Xerox's United States customer operations, based in Rochester, said, ''We see this as a major opportunity to really get former Kodak customers.''
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