Xerox and Fujifilm have inked a deal which will see the latter take over the photocopier and printer business of the former as the struggling U.S. firm seeks to fight off a revolt by activist investors. The deal will see Xerox combined with Fuji Xerox, a joint venture that the two firms have been operating. Fujifilm will have a majority stake of 51% in the resulting entity.
After the merger shareholders of Xerox will get a special cash dividend of $2.5 billion or a little over $9 a share. Xerox, which currently has a market capitalization of $8.3 billion will not be delisted and its brand is expected to survive. The company has been struggling amidst falling revenues that are attributable to Xerox’s inability to swiftly adapt to a rapidly changing environment.
The copier joint venture that the two have been operating was formed more than five decades ago. Currently it generates close to 50% of the total annual revenues of Fujifilm, which is roughly $21 billion.
It is understood that the deal will be phased. Initially using funds borrowed from banks totaling $6.1 billion, Fuji Xerox will buy back the 75% stake that Fujifilm has in the JV. Fujifilm will then use the funds it will obtain to purchase a 50.1% stake in Xerox. Then Fuji Xerox will be merged with Xerox. This means that Fujifilm will not have to use its cash reserves and will therefore remain in a position in which it can make other acquisitions.
Analysts are however wondering what Fujifilm stands to gain by buying a larger interest in Xerox when revenues at the company have declined by 15% in the course of the last three years to a level of $10 billion per year. The deal would also be deviating from Fujifilm’s strategy of diversifying into new sectors such as cosmetics and pharmaceuticals in the face of declining photo film sales.
“It’s a non-growth business and there is no reason why they should buy Xerox itself. Fujifilm has 75 per cent of the joint venture with Xerox so they already have enough exposure there,” a Fujifilm analyst based in Tokyo said.
Due to the adverse business environment the Japanese firm will also eliminate 10,000 positions in the APAC region at its JV with Xerox. With the merger total cost savings of approximately $1.7 billion are expected to be generated in the next five years.