What he didn’t say at the time of the purchase, but would later say privately, was that the Kinko’s purchase answered a challenge from United Parcel Service Inc. Two years earlier, FedEx’s biggest competitor had made a similar move and paid $180 million to buy Mail Boxes Etc., some 4,300 franchised stores, most of which were rebranded as UPS Stores after the acquisition. “We took a look at Mail Boxes Etc.,” says Brian Philips, now COO of FedEx Kinko’s and a 12-year veteran of FedEx. “We didn’t want to get into the franchise business, so we passed.” FedEx wanted it all: the copying business, the real estate, and the 20,000 employees. That was why Mr. Smith declared it “a match made in business heaven.”
If it was, there were skeptics, including Moody’s Investors Service, which placed FedEx’s ratings on review for a possible downgrade because of the strain on the company from the all-cash purchase. And there was the larger question of what a transportation company was doing getting into the retail copy business. Wall Street knocked $1.50 off the share price of FedEx the day after Mr. Smith announced the purchase.
Putting It Together
If Wall Street was initially nonplussed, the employees at Kinko’s were not. FedEx already had drop boxes and even full-blown shipping counters in 134 Kinko’s stores. These included some of FedEx’s highest-performing outlets. “We had already been working with FedEx for 15 years,” says Sally Mainprize, a senior manager with Kinko’s during its CD&R period and now director of commercial marketing and strategy at FedEx Kinko’s. “It made perfect sense to us, and it also made it a more comfortable transition; they were already our partner.”
Also comforting was the knowledge that Kinko’s wasn’t being absorbed by a competitor, which would then institute the usual merger “efficiencies” that do away with redundant departments and employees. Practically everyone could keep their job. And besides, this was FedEx, a company admired universally for its customer service, great technology, and flawless execution. The company is routinely listed among the best places to work and has shown phenomenal growth year after year. Who wouldn’t want to join Fred Smith’s operation? As Ms. Mainprize says, “Everyone was very excited to go work there.”
While the lawyers and bankers were merging the two companies legally, FedEx’s team was preparing to do so practically; a definitive plan was in place before the two sides were allowed to talk to each other. On the day the deal was finalized in February 2004, the integration team was ready to parachute into Kinko’s Dallas headquarters. The initial goal was to have all 1,200 Kinko’s stores rebranded and 20,000 employees retrained, so that every FedEx Kinko’s could open its doors with shipping services by May 24 — dubbed “Day One” by the integration team. On “Day Two,” October 4, they would add packing services — something new to FedEx — all leading up to the peak holiday season when shipping volumes can quadruple.
FedEx has built its business on getting things done quickly, enabled in large part by the company’s military-like management structure. A group at the top oversees strategy, and eight operating companies (FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks, FedEx Supply Chain Services, FedEx Services, and now FedEx Kinko’s Office and Print Services) pull it off. That arrangement allows this huge company — 260,000 employees in more than 3,000 offices covering 220 countries — to move with agility.
Most mergers get bogged down by an inability to make decisions; while newly wed companies are dickering over product lines and staffing levels, their competition can clean their clock. FedEx avoids that kind of failure with a clear chain of command that is structured to take in new companies without losing a step. At the top sits a strategic management committee made up of Mr. Smith, the CEOs from the major operating companies, and senior executives from FedEx corporate. They meet every Friday in Memphis without fail to discuss strategy and execution. If an issue can’t be resolved at the operating company level, give the executive committee a week and they’ll give you a decision.