Also Splits into 2 Companies

Alco Standard to Split Into 2 Companies

By LOUIS UCHITELLE    

JUNE 20, 1996

In the final dismantling of a once-huge conglomerate, the Alco Standard Corporation announced yesterday that it would divide into two companies -- one a distributor of paper products and the other of office copiers and fax machines.

The jewel in this spinoff is Ikon Office Solutions, the office copier division, with $3 billion in annual revenues. Although smaller than the paper distributor, Unisource Worldwide Inc., which has $7 billion in revenues, analysts called Ikon a fast-growing operation likely to achieve, in New York Stock Exchange trading, a higher price-to-earnings ratio than Alco does now.

The announcement of the spinoff came after trading had ended, with Alco closing down $1.625 at $58.375. That price was 25.8 times Alco's earnings, well below the 30 times earnings that Ikon is likely to achieve on its own, said Alex Henderson, an analyst at Prudential Securities. Other companies in the field that Ikon is entering are trading at this level. "We have been firmly committed to selecting the option that will generate the highest value for our shareholders," said John Stuart, chairman and chief executive of Alco, which is based in Valley Forge, Pa. He is likely to shift to those posts at Ikon, a company spokesman said.

With 130 million shares outstanding, Alco's value on the New York Stock Exchange was $7.6 billion at the close of trading yesterday. That total market value is likely to drop initially, once the new companies begin to trade on their own later this year. But each one's stock is then expected to rise, with Ikon certain to be the leader in this process, Mr. Henderson said.

"Ikon is a high-growth, high-visibility, high-multiple operation," he said, referring to the price-earnings ratio. Ikon accounts for two-thirds of Alco's operating profit.

Alco Standard, founded in 1965, once included a coal mining operation, food service, railroad car manufacturing, and pharmaceuticals, all spun off over the last 10 years or more. The company gave as the reason for this final act incompatibility of the two divisions.

While Unisource sells paper to many commercial printing companies, Ikon is increasingly competing with commercial printers by opening copy centers that do what amounts to low-cost bulk printing for corporate clients. That business now brings in more than $100 million a year, said Charles R. Tilden, a company spokesman, and revenue is growing at 25 percent to 50 percent a year.

JUNE 20, 1996