Xerox to Split In Two
- Updated: January 31, 2016
Xerox Corp is splitting off its services business it acquired more than five years ago, becoming the latest giant in the tech industry to take drastic action to cope with a marketplace that is rapidly evolving.
By the end of 2016, Xerox said on Friday it would separate into two companies that are publicly traded. The two will be a document technology company valued at $11 billion based around its namesake copier as well as scanner hardware, and a services provider to industries and government for transportation and healthcare amongst others that is valued at $7 billion.
Activist investor and billionaire Carl Icahn, who has a share of over 8% in the company, has said he will be pushing to implement operational changes and will choose three board members for the services company. That business is also going to seek a candidate from outside the company for its CEO.
Shares of Xerox jumped 5.6% in early Friday trading following the announcement but were down 13% in 2016 through Thursday’s business.
The Xerox board decided the document and services businesses had little if any overlap and required different structures for capital as well as operating models, said a prepared statement by Xerox.
Ursula Burns the CEO said that technology would be a high return of cash to shareholders. Document technology will have a likely return of 50% of free cash flow for shareholders, which is equal to what Xerox is currently doing, said the CEO.
Services, said added, will be more about globalizing the business and investing.
When Icahn took a big stake last November in Xerox, he said his intentions were to speak to the board and executives to improve the company’s operational performance and pursue alternative strategies.
Along with its split, Xerox plans to cut its costs over a period of three years that would result in savings of more than $2.4 billion across the companies, of which over $700 million is expected during 2016.
Burns said that fewer than 2% of the company workforce would be impacted by this split. The overall numbers of employees will shrink, in line with in previous years, since each year more can be done using less.
Xerox’s $4.7 billion revenue for the fourth quarter was in line with analysts’ estimates, while profit excluding special items ended at 32 cents per share, which beat estimates on Wall Street of 28 cents.
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