Tuesday, January 3, 2017

Xerox completes separation of Conduent (undoing a deal that yielded little, if anything, for Xerox)

Blog Publisher’s Comments:

Evidently, “historic days” include the day when a big non-core-business acquisition “gets done” AND the day when that same non-core-business acquisition gets “undone.”  I guess it’s a matter of perspective; one can put a positive spin on anything, even on something that deserves no positive spin, at all.

In early 2010, Xerox completed the acquisition of Affiliated Computer Services, a business services enterprise, one certainly not directly related to Xerox’s core business.  It was the largest acquisition Xerox ever did.

Now, some seven years later, Xerox has completed the spin-off of that business (which is now known as Conduent) into a separate NYSE publicly-traded company.  So much for the high hopes that Xerox once had for the diversification ACS’s business represented.  In other words, IT DID NOT WORK.


January 3rd, 2017

Xerox (NYSE: XRX) today announced it has completed the separation of Conduent Incorporated (NYSE: CNDT), creating two market-leading, publicly- traded companies.

“Today is an historic day for Xerox. The successful completion of the separation sharpens our market focus and commitment to our customers,” said Xerox CEO Jeff Jacobson. “I am confident the transformational actions we are implementing position Xerox for long-term success and unlocks shareholder value.”

Members of the company’s executive leadership team, employees and customers will celebrate the milestone by ringing the opening bell at the New York Stock Exchange (NYSE) tomorrow, Jan. 4, 2017.

Xerox’s focus on growing its global leadership in digital print technology and services will help customers innovate how they communicate, connect and work more productively. The company’s financial model and revitalized business strategy will enable strong free cash flow generation and margin expansion, as well as targeted investments in attractive growth areas, such as document outsourcing and solutions for small- and medium-sized businesses.

Under the terms of the separation, on the distribution date of Dec. 31, 2016, Xerox shareholders received one share of Conduent common stock for every five shares of Xerox common stock they held as of the close of business on Dec. 15, 2016, the record date for the distribution.

In connection with the spin-off, Xerox received a cash transfer from Conduent of $1.8 billion, which it intends to use, along with cash on hand, to retire approximately $2.0 billion in debt.

Article that appeared in the Wall Street Journal early in 2016:

Xerox and ACS: A Troubled Deal from the Start

By MAUREEN FARRELL (for the Wall Street Journal)
Jan 29, 2016 10:16 am ET

Xerox is reversing course.

The company on Friday announced that it’s splitting into two, a move that essentially reverses its 2010 deal to buy Affiliated Computer Services Inc. for roughly $6 billion.

The deal was the largest in Xerox’s long and storied history, but it has done little to help Xerox’s shareholders.

When the deal was announced in 2009, it was considered a big gamble by Ursula Burns, who was just months into her tenure as Xerox’s chief executive. With the deal, she was seeking to bolster Xerox’s traditional copier and printer business by expanding into business services.
Investors were immediately disenchanted by the news, sending the stock down 14% on the day of announcement.

Nearly six years later, the stock is roughly flat, while the market capitalization of the company is way down. Revenues are down, and headcount is up.

The biggest winners from the deal seem to be the investment banks, which generated hefty fees in 2009, and a new slate of banks that are poised to reap between $35 million and $45 million this time around.

The company defends the ACS deal. While a spokesman declined to comment Friday on the stock price, he said that Xerox has achieved most of its goals for the acquisition, including “significant cost synergies, expanding our portfolio, brand equity and innovation capabilities.”

Here’s a look at Xerox then and now:


At the time of the Xerox-ACS deal: Xerox and ACS said they would have annual revenue of more than $22 billion and estimated that 80% of that would be recurring payments for leases, supplies and long-term services contracts.

2016: The two companies had $18 billion in combined revenue for 2015 or an 18% decrease from what they estimated at the time of the ACS-merger announcement. Xerox estimates that its document management and document outsourcing generated approximately $11 billion in 2015, while its business process outsourcing company generated about $7 billion in revenue in 2015.

Market Valuation:

Xerox-ACS deal: At the end of 2010, about 10 months after the ACS deal closed, the combined company was valued by the market at nearly $15 billion, according to Capital IQ.

2016: The market cap of Xerox currently stands around $9.4 billion, down about 37% from the end of 2010, as the company has repurchased more than 380 million shares since the deal was completed.


Xerox-ACS deal: Xerox paid roughly $40 million in fees to its advisors, which included Blackstone Advisory Partners and J.P. Morgan Chase & Co., and ACS paid out roughly $48.5 million in fees to its advisors Citigroup and Evercore Partners, according to Freeman & Co.

Separately, the sale of ACS gave the company’s founder Darwin Deason a rich payday, as he generated an estimated $800 million in a mix of cash and Xerox stock. Citigroup had previously advised Mr. Deacon and Cerberus Capital Management on an attempted $6.4 billion takeover of ACS in 2007, a deal that fell apart.

2016: There’s an entirely new slate of investment banks this time around, but Freeman & Co. estimates that they generate between $35 million and $45 million on the deal. Lazard and Goldman Sachs & Co. are advising Xerox, while Centerview Partners is advising Xerox’s board.


Xerox-ACS deal: At the time, ACS had 74,000 workers compared to 54,000 at Xerox, for a combined 128,000 people.

2015: Headcount is up since the ACS deal, despite several rounds of layoffs in recent years. As of Sept. 2015, the company estimated that it had 140,800 employees worldwide. That figure did not include Xerox’s Information Technology Outsourcing, which it sold in late 2014 and had roughly 9,200 employees.

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