Canon grabs U.S. distributor to counter Ikon deal

By Kaori Kaneko

TOKYO, Sept 24 (Reuters) - Japan's Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz) acquired a small U.S. office equipment distributor and may snap up more to protect its market position after key distributor Ikon Office Solutions (IKN.N: Quote, Profile, Research, Stock Buzz) was snatched out of its hands.

Canon's stock has tumbled sharply since late August after rival Ricoh Co (7752.T: Quote, Profile, Research, Stock Buzz) said it would buy Ikon for $1.6 billion, and aim to replace Canon products with its own printers and copiers in three to four years. [ID:nT32166]

About 60 percent of the products handled by Ikon are made by Canon, and analysts have warned the deal could deal a big blow to its position in the world's largest office equipment market.

Canon said it would buy Newcal Industries, a longtime distributor of its copiers, scanners and fax machines based in San Francisco, for an undisclosed sum. It added that it would look for further investments, spurred on by the Ikon deal.

"Canon U.S.A. has been working on strengthening its direct sales and dealer sales network but Ricoh's case accelerated our sales enhancement plan," said a Canon spokesman who asked not to be identified.

"We plan to invest funds and take various measures and the acquisition of Newcal is the first step of those measures."

Other rivals have also been aggressive in snatching up dealers to bolster their sales channels.

Xerox Corp (XRX.N: Quote, Profile, Research, Stock Buzz) bought Global Imaging Systems for $1.5 billion in May 2007, while Konica Minolta Holdings (4902.T: Quote, Profile, Research, Stock Buzz) earlier this year clinched a deal for Danka Business System's (DNK.L: Quote, Profile, Research, Stock Buzz) U.S. operations.

Canon will probably try to counter those moves by acquiring small distributors across the United States, an analyst said.

"Canon will likely continue to purchase small and medium-sized dealers in each state given that the mega dealers have been already bought by others," said Hisashi Moriyama, senior analyst at JPMorgan Securities Japan.

But Moriyama said it was unclear if Canon will be able to make up for what could be lost with Ikon going to Ricoh, and that deals like the acquisition of Newcal would not really help its faltering share price.

The weakening U.S. economy and yen levels are bigger factors for its stock. Canon closed Wednesday down 3 percent at 4,220 yen, though it has clawed back 12 percent since sliding to a three-year low of 3,770 yen last week.

"The U.S. macro economy and forex movements are the most important external factors. Canon's product lineup and cost-cutting efforts will also be key to the stock price," Moriyama said. (Reporting by Kaori Kaneko; Editing by Chris Gallagher)