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Tuesday, May 27, 2008

IKON and Steel Partners - How IKON Will Be Sold

Who is this Steel Partners? And what does it mean to IKON or to anyone in the industry?

Here is a time line of press releases:

A New York investor ... has acquired 5.4 percent of the outstanding stock of Ikon Office Solutions Inc.

Steel Partners II LP, a hedge fund run by Warren Lichtenstein, bought 7.55 million shares of Ikon for about $86.8 million between Nov. 11 and Jan. 13. Steel disclosed the purchase in a form investors must file with the Securities and Exchange Commission when they acquire 5 percent or more of a company's stock.

Steel said in the filing it thinks Ikon's stock is undervalued. It also said it intended to talk to Ikon's management and board of directors about the company's business, operations and future plans...

Matthew Espe, Ikon's chairman and CEO, said he's glad Steel invested in the Malvern, Pa., company, which is the world's largest independent distributor of copiers and printers.

"We understand their philosophy and they understand our strategy and we think it seems to be aligned," he said.

...In 1998, a shareholders group headed by Lichtenstein won control of the board of Aydin Corp., a Horsham, Pa., maker of communications and telemetry systems. Lichtenstein was installed as chairman and the next year the company was sold to L-3 Communications Holdings Inc. for $75.7 million.

In 2002, another shareholders group led by Lichtenstein was elected to the majority of seats on the board of directors of SL Industries Inc., a Mount Laurel, N.J., maker of power and data quality control equipment. The board subsequently installed Lichtenstein ...

...Steel has been investing in bigger companies of late. The Business Week article said Lichtenstein now focuses on firms worth around $2 billion.

Ikon fits into that category. And the company has been making the kind of moves Steel seems to like.

Last year, it (IKON) sold its U.S. office equipment leasing business to General Electric Co. for $1.5 billion and used the proceeds to pay down debt. It also began taking steps to improve its sales effectiveness, gain share in markets where it's under-represented and target product segments with rapid demand growth.

Espe said the recent cost cuts weren't related to the investment by Steel...Instead, he said, they were part of his strategy to clean up Ikon's balance sheet, boost its growth and cut its costs. Espe thinks that strategy, and Ikon's success in implementing it, is what attracted Steel to Ikon.

"They see the upside," he said, "and I like having investors that see the same thing I see."

-July 07-
IKON Office Solutions: Steel Partners II Recommends Recap Via $850M Self Tender Offer

...9.95% holder Steel Partners II delivered a letter to the company recommending that the company ... to pursue a public recapitalization ... Steel Partners II also states in the letter that if the company is unwilling to pursue a recapitalization at this time, it recommends that the company take all immediate steps necessary to fully explore other strategic alternatives for maximizing shareholder value, including an outright sale.

A Copy of the Letter:

Dear Matthew: (CEO)

I appreciate the opportunity to have had several candid and open discussions with you and Bob over the last few months...we believe that the Company's common stock continues to trade below its intrinsic value and your balance sheet remains highly inefficient...

...If the Company is unwilling to pursue a recapitalization now, we strongly recommend that IKON and its Board take all immediate steps necessary to fully explore other strategic alternatives for maximizing shareholder value. In particular, we believe the Company is ideally situated for an outright sale and that a sale process could result in the Company receiving offers from financial and strategic buyers at a premium to the current market price. Steel anticipates it would participate in any such sale process. Based upon substantive discussions with financing partners, Steel believes that it could obtain all necessary financing commitments within a very short period of time...

Warren G. Lichtenstein


September 18, 2007-

In a 13D filing on IKON Office Solutions (NYSE: IKN) 10.2% holder, Warren Lichtenstein's Steel Partners II, disclosed a letter noting that the company no longer wish to enter into a confidentiality agreement at this time.The firm requested representation on the board of directors, and recommended John Quicke be consider for a board seat.

Lichtenstein said they are committed, long-term shareholders and wish to work with the board - not against it.

Dear Matthew:

...As you know, Steel Partners is one of IKON's largest shareholders and Steel's position in the Company represents one of its largest investments in a domestic public company... SteelPartners has a duty to its investors to protect its investment in IKON and would like to assist IKON in maximizing shareholder value. I believe this could be best achieved with proportionate representation on the Board. With one of my designees appointed to the Board, I believe we can add valuable expertise in assisting the Board in exploring strategic alternatives to maximize shareholder value in an amicable and productive manner. We therefore request that you consider John Quicke, a representative of Steel Partners, for appointment to the Board.

...I would like to reiterate that we are committed, long-term shareholders whose priority is to work with the Board - not against it - in doing what is best for all shareholders...

Respectfully, Warren G. Lichtenstein"

Ikon Office Solutions Inc. has agreed to provide Steel Partners II LP with confidential information in exchange for the New York fund's agreeing to not try to take over Ikon or its board of directors for six months.

Ikon (NYSE:IKN) reached the agreement with Steel on Friday, according to a filing Steel made Tuesday with the Securities and Exchange Commission.

In the filing, Steel said it has agreed to keep the information that Ikon provides to it confidential. The information will allow Steel to talk with Ikon about steps Ikon could take to boost its worth. It also will allow Steel and Ikon to review a recapitalization plan that Steel previously presented to Ikon.

Steel owns 10.2 percent of Ikon, a Malvern, Pa., company that is the largest independent distributor of copiers and related products.

Warren Lichtenstein, who controls Steel, last month wrote a letter to Matthew Espe, Ikon's chairman and CEO, asking him to consider appointing a Steel representative to Ikon's board of directors.

Lichtenstein made the request after Espe said Ikon didn't want to enter into a confidentiality agreement similar to the one Steel announced in the Tuesday filing.

In June, Lichtenstein told Ikon that it should borrow money and offer to buy back its stock at $17.50 per share or sell itself outright.

Ikon's share price was $12.65, down 22 cents, at 2:45 p.m. Tuesday.

- January 2008 by Rich Duprey at Motley Fool:

Not an icon of office supplies

"When document manager IKON Office Solutions reports earnings tomorrow, you can expect them to come in as much as 38% lower than the guidance management had previously given. ... but management sees "no fundamental reason why we can't grow revenue in fiscal 2008." While they can't see any impediment to growth, in the event things don't pan out as expected, they'll take additional, unnamed actions.

Perhaps they'll consider the remedies being bandied about by one of their largest shareholders, Steel Partners, which has a 13% stake in the office equipment provider. Steel Partners has been seeking a possible sale of the company, as well as attempting to win a seat on the board of directors. So far, apparently, IKON's management has rebuffed those endeavors, although Steel Partners has backed IKON's $500 million share repurchase plan.

As for a dividend, IKON's yield lands midway between Pitney Bowes (NYSE: PBI) and rival Xerox (NYSE: XRX), which has found its financial condition improved enough to resume its dividend after cancelling it six years ago.

It's been awhile since either a bull or a bear has weighed in with a pitch about IKON's future. But when top-rated All-Star CubsBearsBulls43, who ranks higher than 99.13% of all CAPS players, opined 11 months ago on the office-solutions provider, he didn't see it surviving unless it sought out new avenues for growth:

Unless they branch out to other products or services it's hard to imagine they can outperform the market. This is not a growth industry. They're just hoping they don't become another Danka.

That seems to echo the sentiments of CAPS player harbingerofdoom, who felt a few months ago that the competition was moving too fast for IKON to make it alone: "Xerox high end product line, expansion of Canon, Ricoh, Konica Minolta and Toshiba direct operations that will cut into Ikon's core major account business, printer convergence with copiers and HP's aggressive push into selling printer based MFPs to replace copiers impairing margins in the office segment ..."

Steel Partners has been saying IKON is undervalued and agitating for change since it first acquired its position back in 2005. Perhaps management will soon take up the challenge and print out a new plan of action."


To summarize:

-Steel starts off with 5.4% of IKN stock in 2005 and by 2008 has up to 13%.
-Steel buys companies and "increases value for their investors"
-Steel usually works with the company, strong-arming them.
-Steel places someone on the board, see this article
-Steel then sells the company or sells off parts of the company.
-Steel has been rattling the sabre for 3 years now.

IKN may not go directly to Canon or Ricoh or HP - it may get purchased, split into many pieces and sold as long as the value to it's stock holders increases.

This is complicated ain't rocket science, it's brain surgery! And I will be watching Steel more then Canon, Ricoh or HP.


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Greg Walters, Incorporated