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Norwalk, Conn.-based Xerox Corp. confirmed this morning that it will split into two companies. The split effectively takes Affiliated Computer Services — which it bought for $6 billion in 2009 — out of the company.
The restructuring, expected to be completed by the end of the year, will divide Xerox into a document technology company that will include its printer and imaging businesses and a business process outsourcing company. The new company will look like this:
Pursuing Evolving Markets
“Today Xerox is taking further affirmative steps to drive shareholder value by announcing it will separate into two strong, independent, publicly traded companies,” Ursula Burns, CEO of Xerox said in today’s statement.
“These two companies will be well positioned to lead in their respective rapidly evolving markets and capitalize on the opportunities that now exist to expand margins and increase market share,” Burns continued.
Commenting on the review process that led to the decision to reorganize, Burns endorsed the plan, saying that she believed that the company had come up with the best plan to secure the future of Xerox and position both companies to ensure their future growth and success.
One Becomes Two
The newly named Document Technology Company will continue to provide document management and document outsourcing services designed to “optimize document management in an increasingly interconnected, digital world,” Burns told shareholders in a webcast.
The combined value of those business components was an estimated $11 billion for 2015.
The Business Process Outsourcing business, which earned approximately $7 billion for Xerox last year calendar year — more than 90 percent of that amount annuity based — will be focused on potential growth markets including transportation, healthcare and commercial and government services.
Burns underscored that the outsourcing business will be an independent company to ensure it the focus and flexibility it needs to adapt to the changing needs of its clients.
Strong Financial Pressure
While there has been speculation that activist investor Carl Icahn, had pressured the Xerox board to split the company after accumulating an 8.1 percent stake last November, Burns denied this.
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There seems little doubt, however that Xerox’s dramatic third-quarter shortfall of $4.3 million last October — a ten percent drop versus year ago — exerted strong pressure of its own.
That disappointing result came on the heels of a nearly 30 percent drop in the value of Xerox shares over the past 12 months.
Seeking Market Agility
While Burns acknowledged that her role in the new companies has yet to be clarified, she was quick to point out that the figures reflect the urgent need to adapt to an increasingly agile document management market.
“Today’s market realities require greater agility and flexibility, the ability to innovate and adapt technology to address clients’ fast-evolving needs and a more focused and efficient approach to operations and capital allocation,” Burns said.
And the Good News Is
There will be four principal advantages of the split for both companies:
- Enhanced strategic and operational focus
- Simplification of structure and resources
- Distinct and clear financial profiles
- Creation of separate opportunities for investors
In practical terms it will also allow for a structural re-organization of the company aimed at cutting costs by $2.4 billion over the next three years.
A New Global Gorilla?
Xerox will remain a single company until the split is finalized at the end of the year and the story could well remain on track for a happy ending. With Carl Icahn holding three seats on the board, Xerox will be well positioned to take advantage of potential global economic upswings.
Both business process outsourcing and document management remain attractive businesses and it’s very possible that instead of one 800-pound enterprise gorilla, there will now be two, ready to take on opportunities in the marketplace.
