Espe, other top Ikon Office execs to get big retention bonuses

From Philly.com
Friday August 29, 2008

"When Ricoh Co. Ltd. agreed to buy Ikon Office Solutions Inc. for $1.6 billion earlier this week, one thing that was clear was that Ikon management was going to stay on to run the big office equipment distribution business based in Malvern.

They have a million reasons to do so.

Under executive retention agreements, CEO Matthew J. Espe and five other senior executives would receive some hefty payments if they stay a full two years following the sealing of the deal.

The maximum Espe could receive is $8,630,400 over two years. He could stay as little as six months following the closing of the acquisition and get $1,294,560. The agreement is structured in a way that escalates payments the longer Espe stays. So $1,726,080 after 12 months, $2,157,600 after 18 months, and $3,452,160 after 24 months.

Retention bonuses are common in big deals like this, because often the last thing an acquirer wants is to be handed the keys and watch the top management wave good-bye.

According to a filing with the Securities and Exchange Commission, Ikon says these retention agreements replace severance pay the executives would have been entitled to receive. So they turned severance pay into incentive pay.

Here are the maximum payouts for other Ikon executives:

* Robert F. Woods, Ikon's chief financial officer, $2,122,375;

* Jeffrey Hickling, its senior vice president of operations,$1,850,625;

* David Mills, president of Ikon Europe, 906,144 pound sterling.

The retention agreements for Mark A. Hershey, Ikon's general counsel, and Mark Bottini, senior vice president of US field sales, were not attached to today's filing."
Click to email me.

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

RiKon - "Really, I Knew One Name..."

August 27, 2008: The single largest day for this blog in terms of hits, reads and minutes on site.

I needed to take a little pause, a deep breath before writing anything of a personal nature. I think that I am somehow, uniquely positioned to add insight and reflection regarding the purchase by Ricoh of IKON.

First, an introduction: Today is August 27th, 2008 I just pulled up my resignation letter to IKON dated October 10, 2007 – it hasn’t even been a year. At that time, I knew I had left 8 months too late. The very next day, I felt relief. I will not go into all the reasons why I left – after nearly 4 years, it just wasn’t working out.

But while I was there, I met and worked with some of the most professional, caring and empathetic people in the industry. And while I was there, I worked with some of the most foolish, idiotic, numb-skulled people you would ever meet. Worse, were some of the most “over the top” procedural rules and protocols imaginable. For every sale, at least 35 “support” people needed to touch the order in some manner. For one order of mine, I tracked 62 people on one email string. We are talking a bureaucracy that rivals the Mexican or any other third world government.

While with IKON I coined the following phrases:

“On the first of the month, we all sell solutions, by the 22nd of the month, our managers convince us we move boxes.”

“For every Professional Service person I bring into the pre-selling process, I need to add 30 days to the sales cycle.”

“When the going gets tough, the management gets Micro.”

To the newly hired,
“Don’t bother telling me your last name, we aren’t going to get to know each other that well…”

While with IKON, I learned more about document management, software, and business. I enhanced my existing knowledge of how copiers and printers and software impact the business. I was given the freedom to learn all I could about each and every machine or delve into the most complex Document Management Software.

I carry not one ill feeling towards the company, and I have fond memories around the people I met and worked with there in Redlands. Don, Mike, Dawn, Karen, Katie, Monica, Nicole, Kim, Doug, Mark and all the rest…good times.

Also, I met some exceptional people from Ricoh. The Ricoh/IKON relationship was a great one, at least in SoCali, I can’t comment on anywhere else. You see, most of IKON’s business was Canon so Ricoh was always “second” – and they seemed to try a bit harder than anyone else. Ricoh spent money on IKON. Contests/Trips to Vegas, golf outings, dinners, client events – with Ricoh the answer was always, “yes, do you need more?” I do remember those times – Jerry and Frank.

---Onward ---

Ricoh Americas Corporation was established in 1961, boasts revenues of 2.8 billion yearly and utilizes Ricoh Business Solutions as the direct sales arm of Ricoh.

IKON had three basic “entities” - Hardware, Managed Services and Professional Services.

And at IKON, RBS was considered an opponent that will always be able to sell lower the us. An adversary who could provide excellent “transactional” service but being a little “thin” in areas of software expertise. The inside joke was, “RBS would win the deal, and use IKON to service the machines, because they didn’t have the coverage…”

Seriously, the main reason RBS ever won deals over IKON was price.

An RBS Sales Rep didn’t have a 15% “pack” lobbed on by corporate IKON.
----

Ok, let's see - Ricoh gets:

• A channel of over 400 locations in North America and Europe, 24,000 employees, nearly 10,000 trained and certified technicians; certified on HP, Kyocera, Konica Minolta, Ricoh AND Canon.
• Ricoh, will have a remanufacturing plant down in Mexico.
• Ricoh just acquired a portfolio of On-Site Managed Services Clients. Lots with Canon gear.
• Ricoh sliced away from Canon a additional, friendly supplies infrastructure on a Global scale.
  

The way I see it, the Biggest Goodies Ricoh gets are:

1. Biggest Channel
2. A huge list of old IKON Canon customers that are now Ricoh prospects
3. A trained national and international service team
4. A huge, proven, "box" oriented AND "solution" minded Sales Force
5. But the big Gem in the deal is IKON's Professional Services team. These folks are highly trained in the art of software (relative to the industry). No other company has so many people trained and experienced in selling and implementing multiple document management software systems.

I mean, in the software realm, Xerox has Xerox specialists who only know and install Xerox - HP has external "partners", Konica Minolta has very little and is growing in this area. No other company has committed so much to so many different software partners. And when you look at what IKON has next to what RBS did not have, the difference is striking.

Fish Eats Fisherman -

IKON is more robust then RBS. And although Ricoh is plunking down the cash, the infrastructure, the value system and the sheer girth of IKON could overtake RBS in a heartbeat.
IKON did nothing wrong.

This dwarfs any and all previous acquisitions even the Xerox/Global “merger” and makes the Konica-Minolta-Danka deal look like folly. Indeed, this time next year, the IKON infrastructure may have completely engulfed RBS to such a level, that RBS exists in name only.

Make no mistake - this is a purchase, not a merger. Oh, and for current IKON employees, there could be a very silver lining.

Ricoh isn’t “rescuing” IKON. Aside from reducing management, and completing the implementing some internal software, IKON will not need to change all that much – the question is, can Ricoh handle this assimilation or will they develop a bad case of heartburn.

In 3 months, Ricoh will have the biggest and most trained selling force in the industry. And the transition for sales people could be the least painful of all.

What about the IKON employees?

As far as I am concerned, there is plenty to cut in the mid to upper management levels – but for Ricoh, the on the street, in the trenches, sales force is better trained then any out there and CAN be highly motivated when given proper vision and management. So, the selling staff has a great opportunity to lead the success of the amalgamation – if Ricoh is as smart as I think they are, they won’t get rid of too many sales people.

And as an IKON sales person, one day you will be competing head to head with…Canon. And who knows Canon better than an IKON rep?

A Canon rep, maybe?

Richard Berger, a spokesman in Tokyo for Canon, declined to comment on whether the company was in talks to buy Ikon or would submit a bid.

``We plan to accelerate our strategies that enhance our commitment to independent distributors,'' Berger said."

More likely, these new Ricoh Sales people will be going up against a small, independent, newly christened Canon dealer. The poor fellow won’t know what hit him.

So, no fear for the IKON selling professional – the people at IKON who should be shaking you their boots:

• Executive Management
• Upper management
• Service Management
• Sales Management
• Administration
• Order Processing
• And anyone who upset Ricoh in the last 5 years by converting a Ricoh prospect into a Canon sale.

In the meantime