November 6, 2019

Breakingviews: Xerox truce leaves future in black and white

by Breakingviews.

Clarity has value. Xerox’s exit from a tortuous relationship with Japan’s Fujifilm brings just that. The roughly $8 billion U.S. copier firm is selling its stake in two Asian joint ventures to its partner for $2.3 billion. That’s far better than the convoluted, activist-opposed merger the two had agreed to last year. The company’s spiffed up governance and simpler structure may even tempt a buyer.

Xerox has spent two years embroiled in a situation messier than a broken toner cartridge. Former Chief Executive Jeff Jacobson agreed to merge into a joint venture run with Fujifilm, and pay a $2.5 billion dividend to shareholders. Shareholders would have emerged with just under 50% and Jacobson would have kept his job. Darwin Deason and Carl Icahn, who between them owned over 15% of Xerox’s stock, opposed the deal. They successfully blocked the transaction, kicked out most of the board, and emplaced a new CEO, John Visentin. Now, Xerox will cut free its share of the venture rather than doubling down, and in return Fujifilm will stop trying to sue it.

One problem solved, but others remain. Copiers and printers are fading out of offices, and Xerox’s revenue is shrinking. But the cash can help pay down debt, buy a small tuck-in firm or two, and reward shareholders. A simpler firm would also be easier to sell. Combining with another copier firm like HP could promise cost savings; private equity sometimes tolerates slowly declining revenue if there is cash to be extracted. On Tuesday Fujifilm’s market value rose $1.5 billion, and Xerox’s by mid-morning was up around $400 million. Investors seem to agree that their prospects have been enlarged.

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