Xerox will separate into two companies, a $11 billion document technology company and a $7 billion business services company, the office equipment maker announced Friday.
The transaction into two independent publicly-traded companies is expected to be complete by the end of the year. Xerox also announced a three-year restructuring program expected to save $2.4 billion.
These “significant actions … define the next chapter of our company,” said Chairman and CEO Ursula Burns in a conference call Friday morning from Xerox’s headquarters in Norwalk, Conn.
Separating the current company into one devoted to printers and copiers and another focused on systems to handle corporate transactions and payments will allow each to execute their distinct strategies — and represent better investments separately than the current Xerox, she said.
Billionaire investor Carl Icahn will have a continuing part to play in the separation. He will name three members to the board of the business services company and can also select someone to observe and advise the search for a CEO of that company. “We applaud Ursula Burns and Xerox’s Board of Directors for recognizing the importance of separating Xerox into two publicly-traded companies,” Icahn said in a statement included in the announcement.
The move comes more than 70 years after the Rochester, N.Y.-based Haloid Co., the company that would eventually become Xerox, acquired the rights for xerography, or photocopying, from Chester Carlson. The company brought the Xerox 941 to market in 1959 and changed its name to Xerox two years later.
Xerox’s star rose in the Seventies as it battled IBM and Kodak for dominance in the copier business. Revenue in 1996 hit $17.4 billion, not far from last year’s revenue. But the company missed some opportunities that would come back to haunt it. Its own Palo Alto (Calif.) Research Center would develop what would become the personal computer, the PC desktop graphic interface and the Ethernet standard, but other innovators such as Apple’s Steve Jobs would make those mass market products.
The company has struggled as the printer business slowed, market activity that also led to a similar split by larger competitor HP. In November 2015, HP split into two companies: Hewlett Packard Enterprise (HPE), which sells hardware such as servers for data centers, and HP Inc., which sells PCs and printers.
Such splits seem to be occurring more frequently in the past, but the success isn’t guaranteed, said Jason Schloetzer, assistant professor of accounting at Georgetown University’s McDonough School of Business. “These splits work for investors in the short run,” he said. “It remains unclear whether such splits have long-run benefits.”
Xerox remains a Fortune 500 company and is also on Fortune’s 2015 Most Admired company list.
Shares of Xerox (XRX) were up more than 5% Friday to $9.75. Shares have fallen 28% in the past 12 months, while the S&P 500 has fallen about 4%.
In its previous quarter Xerox posted a net loss of $34 million, compared to $266 million in profit during the same quarter in 2014. A month later in November, Icahn announced that he had acquired a 8.1% stake in Xerox — making him the second-largest shareholder — and labelled shares of the company as “undervalued.”
Source: USA Today | Mike Snider
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