Japan's second-largest office equipment supplier, Ricoh Co Ltd is acquiring ofiice supplies distributor Ikon Office Solutions of the US for $1.62 billion in a cash deal wherein it would a premium of 11 per cent at $17.25 cash for each Ikon share, to Tuesday's closing price of $15.56.

The deal has been approved by the boards of both companies and regulatory approvals in the United States, Canada and Europe are awaited. Ricoh expects the deal to close in the fourth quarter of 2008 and Ikon will become its subsidiary.

Canon will be hit by the acquisition as Ikon distributes 60 per cent of Canon's products, which will now be replaced with Ricoh's over a period of four years. The outcome will be a direct hit of 3 per cent on sales turnover for Canon.

It lost lost 5.2 per cent to close at 4,790 yen on the Tokyo Stock Exchange, the biggest decline since 3 March. Ricoh added 2.9 per cent to 1,777 yen, after gaining as much as 6.8 per cent.

The acquisition also present's Ricoh a unique challenge, that of retaining Ikon's customers who are using Canon equipment as well as employees who are well versed in Canon's business.

UBS AG said the acquisition might cause Canon's North America revenue to fall by as much as half, while Merrill Lynch & Co. estimates the company's overall sales would drop about 3 per cent if it lost Ikon as a distributor. The purchase adds 400 sales locations for Ricoh in the US, Canada and Western Europe, markets that account for more than half of Canon's revenue.

Ricoh will finance the transaction through a combination of its own funds and external funding.

Ricoh, a Japanese company manufactures office printers, fax machines and copiers, and has been a supplying equipment to Ikon for many years. Ikon is an office equipment sales and service company having a strong presence in North American with offices in 400 locations in the United States and Europe.

With this acquisition the competition in the office equipment market will become intense with rivals such as Xerox Corp, Canon and Konica Minolta having already started consolidating theiir operations through acquisitions of independent distributors.

In May 2007 Xerox bought Global Imaging Systems for $1.5 billion and Konica acquired the US unit of Danka Business System. in January 2007, Ricoh said it would pay $725 million to buy IBM's digital commercial printer business.

Ricoh, competes with Xerox, Canon and Konica Minolta in printers and copiers.