Xerox in Organizational Shake-up Mode

Photocopying giant in talks to acquire financial printing firm R.R. Donnelley & Sons

Source: Company's Website
Source: Company’s Website

Xerox Corp. (NYSE: XRX), best known for its photocopying technology and contributions to the development of personal computing in its early days, is in talks to acquire financial printing firm R.R. Donnelley & Sons Co. (NASDAQ: RRD), as reported by Bloomberg on Monday, July 11th, 2016. Xerox is looking to merge parts of R.R. Donnelley with its copier, printer, and related-services business and the rest with its smaller business process outsourcing services following a potential acquisition.

On January 29th, 2016, Xerox announced its plans to split into two companies by the end of 2016. Xerox is now on track to separate into a document technology company manufacturing printers and copiers, which would have annual revenues of roughly $11 billion, and a business process outsourcing company, which would have annual revenues of approximately $7 billion. The separation comes at a time when the Company has been trying to shift focus to being asoftware and services provider, as corporate customers have been cutting printing costs and consumers rely more on mobile devices. Xerox decided to split its business in two after its management had come under pressure from activist investor Carl Icahn, who had long been supporting a reshuffle of Xerox’s business model.

R.R. Donnelley, the owner of the Edgar financial-statement wire service, had also announced that it planned to split into three publicly traded companies in 2015. However, a possible deal with Xerox could negate that plan. Xerox has a market value of about $9.63 billion, while R.R. Donnelley has a market value of about $3.94 billion, both based on Monday, July 11th, 2016 closing share prices.

Xerox restructures operations prior to separation

In June 2016, Xerox named Jeff Jacobson the new CEO of its copier business. Ashok Vemuri is slated to take on the CEO role for the business process outsourcing company, which will be called Conduent Inc. Xerox also appointed Jonathan Christodoro as Director on its board with effect as of June 27th, 2016. Xerox’s document technology business generated about $11 billion in revenue, compared with $7 billion in sales from its outsourcing business in FY15.

Both Xerox and R.R. Donnelley have mulled over the positive aspects of pursuing a merger, following the example of Hewlett Packard Enterprise Co. (NYSE: HPE) and Computer Sciences Corp.’s (NYSE: CSC) spin-merger announced on May 25th, 2016. Hewlett Packard Enterprise stated that it would divest and merge its struggling IT services business with Computer Sciences Corp., allowing the Company to focus on its cloud services and other fast-growing units. This strategy proved to be a win-win situation for both parties, and boosted their market valuations after the announcement.

Xerox’s separation on track

On June 30th, 2016, Xerox announced the initial filing of a Form 10 registration statement with the U.S. Securities and Exchange Commission (SEC) in connection with its separation into two independent, publicly traded companies. The filing includes important information on the planned distribution of shares of Xerox’s current business process outsourcing business. Xerox expects to complete the separation by the end of 2016.

With approximately $7 billion in FY15 revenue, Conduent aims to be a leading provider of business process services with expertise in transaction-intensive processing, analytics, and automation. Conduent will focus on industry-specific service offerings in the healthcare and transportation sectors, as well as multi-industry service offerings in transaction processing, customer care and payment services, among others.

Following the separation, Xerox will aim to develop technologies to improve productivity, workflow and business performance. With approximately $11 billion in FY15 revenue, Xerox will pursue select growth opportunities with a focus on operational excellence, cost discipline, technology, and innovation.

Stock Performance

X2Xerox’s stock stood at $9.67, inching up 1.79%, at the close on Tuesday, July 12th, 2016, having vacillated between an intraday high of $9.88 and a low of $9.60 during the session. The stock’s trading volume was at 7,571,600 for the day, which was higher than its 3 months average volume of 6.83 million.

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