It’s the end of one era and the beginning of a new one, we really think so.
(Pictured: The Cannata Report's Editor-in-Chief Scott Cullen with Xerox CEO Jeff Jacobson at an October 2017 Xerox event.)
The news this morning that Xerox will combine its operations with a joint venture with Fujifilm Holdings of Japan may not turn out to be the biggest surprise of 2018, but for now it is earth shaking to say the least. The transaction is valued at $6.1 billion.
With the announcement, Fujifilm now owns 50.1% of Xerox. A New York Times article reports that Fujifilm is looking to cut $1.7 billion in costs in the coming years and 10,000 jobs internationally because of what it deems “severe market conditions.” Meanwhile, The Norwalk Hour reported there is currently no indication as to how any of those cost and job cuts will affect Xerox’s U.S. workforce.
Shigetaka Komori, chairman and chief executive officer of Fujifilm, said in a joint press release issued by Fujifilm and Xerox, “Fujifilm and Xerox have fostered an exceptional partnership through our existing Fuji Xerox joint venture, and this transaction is a strategic evolution of our alliance. The Document Solutions business represents a significant part of Fujifilm’s portfolio, and the creation of the new Fuji Xerox allows us to more directly establish a leadership position in a fast-changing market. We believe Fujifilm’s track record of advancing technology in innovative imaging and information solutions – especially in inkjet, imaging, and AI areas – will be important components of the success of the new Fuji Xerox.”
This deal, once finalized, marks the end of Xerox’s 115 years as an independent company. According to the Times, under the deal, Xerox will become part of the Fuji Xerox joint venture, which sells office products and services in the Asia-Pacific region. The company will maintain the Xerox and Fuji Xerox brands in their respective operating regions and will have dual headquarters in Tokyo and Norwalk, CT. Current Xerox CEO Jeff Jacobson continue in his current role, according to the Hour story.
“The proposed combination has compelling industrial logic and will unlock significant growth and productivity opportunities for the combined company, while delivering substantial value to Xerox shareholders,” said Jacobson in today’s Fujifilm press release. The new Fuji Xerox will be better positioned to compete in today’s environment with truly global scale, increased presence in fast-growing markets, and innovation capabilities to effectively meet our customers’ rapidly-evolving demands. In addition, the combined company’s strong financial profile will enable investments that support continued market leadership, while also providing opportunities for increasing capital returns over time.”
As part of the deal, Xerox will issue a combined $2.5 billion in cash dividends or $9.80 per share to its shareholders. The Times also reported that the combined company would have $18 billion in annual revenue and would continue to trade on the New York Stock Exchange under Xerox’s ticker symbol, XRX.
The Times further reported that Xerox shares rose about 12% over the past month in anticipation of a deal while the Hour reported that shares of Xerox were up 4% prior to the opening bell on Wednesday to $34, the stock’s highest level since March 2015.
The announcement comes less than two weeks after rumors began circulating that Carl Icahn, one of Xerox’s shareholders was encouraging the Xerox Board of Directors to sell and dump Jacobson who took over for Ursula Burns in 2017 after Xerox was split into two companies.
This is indeed the end of a historic era in the copier industry. Considering Xerox’s struggles to remain profitable in a world where the nature and future of print is in dramatic flux, drastic measures were necessary, and considering the Icahn alternative, the Fujifilm option right now seems to offer Xerox the greatest opportunity to move forward. We also believe that it is a wise decision to maintain the status quo with Jacobson leading the company’s initiatives here in the U.S. The pressure will be on, but we think he’s a strong and capable leader and deserves this opportunity to guide Xerox through this transition.
Frank Cannata's Take
In attempting to understand the ramifications of the split in Xerox (separation of Imaging and Services) we have stayed very close to this situation. We have always been a close follower of the big X and continue to believe they are far more capable than most analysts (financial and otherwise) give them credit.
That said, this latest announcement is the Xerox’s Board response to Carl Icahn’s continuing pressure to sell Xerox. With Fuji Film now in control with seven seats on the board while Xerox has five, that limits what Icahn can do. His strategy has been demonstrated over and over again since he acquired TWA in 1986.
I am not a financial analyst and do not pretend to be one, but in my opinion his game plan is fairly simple. Here is what the Icahn game plan appears to be. You start off by buying enough stock to have a place on the Board. Put pressure on the stock and encourage friends on Wall Street to begin selling the target short. Attack the company’s management and demand that he or she be fired. Make the company vulnerable and watch as the stock price declines.
You then bring in someone to be the new CEO acceptable to Icahn and cut like crazy. The aim is to return to profitability (short term) or until the stock reaches the desired level to sell. An alternative strategy is to sell off pieces. Start with the patent portfolio, MIF, and distribution pieces such as Global.
Whatever plan is chosen the desire is simple – bleed the company and make the big kill and bury what remains. The move by Fuji and Xerox appears to have prevented any of that from happening. Our hope is that Xerox continues to survive and its continuing viability in the market place is good for our industry.
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