IKON up big on Ricoh buyout news; SI super on sale to Serco; Temasek fund bullish on Merrill, ups stake

By Paul Deckelman

New York, Aug. 27 - IKON Office Solutions Inc.'s shares rose Wednesday on the news that the Malvern, Pa.-based provider of document management and business information workflow solutions had accepted an all-cash acquisition offer from Japanese office machines giant Ricoh.

Also on the merger and acquisition front, government contractor SI International Inc. agreed to be acquired by Britain's Serco Group plc, and its shares rose smartly to just below the takeover price.

Quiksilver Inc.'s shares were pure gold to investors on the news that the sporting goods and athletic apparel maker finally found a buyer for its underperforming Rossingol ski gear business.

Temasek Holdings has reportedly received U.S. antitrust approval to raise its stake in Merrill Lynch & Co. Inc. to as much as 14%. The Singapore-based sovereign wealth fund - already the Big Bull's biggest shareholder - also gave Merrill CEO John Thain a strong vote of confidence.

Overall, the bellwether Dow Jones Industrial Average rose 89.64 points, or 0.79%, to 11,502.51, although at one point during the session, the index had been up more than 140 points before trimming those gains. Among the broader stock indicators, the Standard & Poor's 500 index gained 10.15 points, or 0.80%, to 1,281.66, while the Nasdaq composite index rose 20.49 points, or 0.87%, to 2,382.46. Stocks were helped by a stronger-than-expected July durable-goods report coming out of Washington - an indication that the economy might be more resilient than first thought.

Big buyout boost for IKON

Among specific names, IKON's shares shot upward on the news that Ricoh, a maker of office copiers, printers and fax machines as well as digital cameras and other electronic devices, has agreed to buy Malvern, Pa.-based IKON, which sells office equipment by various manufacturers as well as other products and services that aid companies in document management and workplace information processing.

IKON, which describes itself as "the world's largest independent channel for document management systems and services," said that it had signed a definitive agreement with Ricoh to be acquired for $17.25 per share, or approximately $1.6 billion in cash.

IKON's chairman and chief executive officer, Matthew J. Espe, said in the company's press release announcing the planned sale that "following an extensive review of our strategic opportunities, our board conducted a formal process to evaluate alternatives for the company" before deciding on the Ricoh transaction.

Espe said that the offer represents a 33% premium over his company's trailing 60-day average stock price as of the close of trading on Tuesday, the last trading day before the deal was officially announced. The transaction is not contingent upon financing - Ricoh plans to fund it with "a mix" of internal and external financing - and is expected to close sometime during the fourth quarter. It has already been approved by the boards of directors of both companies, and is subject to approval by IKON's shareholders, as well as regulatory approvals in the United States, Canada and Europe, and customary closing conditions.

IKON (NYSE:IKN) shot up as high as $17.23, or 10.73%, in intraday dealings, just under the Ricoh offer price, before finishing up $1.46, or 9.38% on the day at $17.02. Volume of 37.2 million shares was almost 52 times the average daily turnover.

SI International soars on Serco sale news

Also on the M&A scene, SI International announced that it had agreed to be acquired by Hook, United Kingdom-based Serco Group in a $423 million deal worth $32 per share to investors - a 40% premium to SI's closing share price on Tuesday of $22.89.

Besides buying the company's shares, Serco will also assume $87.3 million of SI's debt.

Reston, Va.-based SI provides information services, technology, and network solutions, primarily to the federal government, with clients including the U.S. State and Defense Departments. Serco also does some federal work, notably for the Federal Aviation Administration, as well as providing similar functions for the British government and European governmental and supranational clients.

SI International (Nasdaq: SINT) jumped $8.16, or 35.65%, to $31.05, on volume of 2.7 million shares - almost 19 times the usual activity level.

Quiksilver quickly runs up on asset sale

Another big deal making news was Quiksilver's announcement that it had found a buyer for its Rossignol ski equipment division, which the company considers to be not a core operation.

Quiksilver - which designs, produces, and distributes apparel, winter sports equipment, footwear, accessories, and related products - said that it had agreed to sell it agreed to sell its Rossignol business, which includes skis and related equipment and winter sports apparel, to Chartreuse & Mont Blanc, a group majority-owned by the Australian financial services company Macquarie Group and led by Rossignol's former CEO, Bruno Cercley, for €100 million, or about $147.6 million. The deal is subject to a financing condition and is expected to close in the fall. Quiksilver will use the proceeds from the sale to pay existing debt.

The deal price - which consists of €75 million in cash and a €25 million seller's note - is far less than the $560.8 million that it paid for Rossignol just three years ago - but Wall Street never liked the deal in the first place, believing that Rossignol did not fit in with the company's other product lines.

The unit struggled, and proved to be a drag on the overall company, whose market capitalization fell by more than half over the last three years. Finally running up the white flag at the beginning of the year and putting the once-valued unit back on the auction block, Quiksilver beat the bushes for a buyer, although there was a general consensus that getting a deal done at any kind of a decent price would be very tough, and some in the marketplace doubted it would get done at all.

Citigroup analyst Kate McShane said in a research note that even at the almost fire-sale price that it will get for Rossignol - which she called "roughly in line" with market expectations - the transaction is a positive for Quiksilver, since it lets the company finally rid itself of a costly white elephant of a "negative margin business" and instead focus on its core apparel and footwear lines like Quiksilver, Roxy and DC Shoes. Even so, McShane kept the stock as a "hold" and maintained her $10 price target, citing continued challenges in apparel manufacturing through the rest of the year.

Quiksilver (NYSE:ZQK) initially zoomed 18.5% in intraday dealings, to a high of $9.20 per share, before coming down from that peak to close at $8.64, up 88 cents, or 11.34%, on the session. Volume of 5.97 million shares was almost three times the norm.

Singapore fund eyes Merrill

Among the financials, even though Merrill Lynch has been among the Wall Street giants that have had to write down billions of dollars of investments related to the sagging credit markets in the past year, the big brokerage remains a favorite of a very important investor - Temasek Holdings, the Singapore government-owned sovereign wealth fund, and Merrill's largest single holder.

According to a Bloomberg news report, Temasek has received clearance from U.S. antitrust regulators to up its present 9.4% stake in Merrill to as much as 14%. The $130 billion Temasek has already invested as much as $5 billion in Merrill Lynch since December, following the management shakeup that included the ouster of then-CEO Stanley O'Neal and his replacement by John Thain.

It said in July that it would put another $900 million into Merrill after it was compensated for the initial investment, using a $2.5 billion reset payment for losses from its earlier purchase toward buying $3.4 billion of Merrill stock.

Besides praising Merrill itself as having a "great franchise which has existed through many crises through a long period of time," the fund singled out Thain for high praise, saying it put its money where its mouth was and bought its Merrill Stake because "we had great confidence in John Thain; we had great confidence in the rest of the management and the board."

Merrill Lynch (NYSE: MER) rose $1.17, or 4.85%, to $25.27, though volume of 25.6 million shares was less than two-thirds of the usual turnover.

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