Xerox Sells Stake in Fuji Xerox Joint Venture

Ron Gilboa
Nov 11, 2019

On November 5th, Xerox announced that it is selling its 25% stake in Fuji Xerox to Japanese partner Fujifilm for $2.3 billion, ending a 57-year joint venture. The deal gives Fujifilm 100% ownership of Fuji Xerox, over a year after it failed to acquire majority ownership of Xerox and merge it into Fuji Xerox.

Xerox is also selling a majority stake in a smaller joint venture (Xerox International Partners) to an affiliate of Fuji Xerox and the amount of time Fujifilm will be a significant Xerox supplier has been extended.

Another critical part of the deal: Fujifilm’s $1 billion lawsuit against Xerox for abandoning the $6.1 billion Xerox acquisition will be dropped.

According to Xerox Vice Chairman and CEO John Visentin, the agreements will effectively “reset” Xerox’s relationship with Fujifilm, and give both companies opportunities to grow together and independently. In addition, he says the deal will:

  • Unlock significant unrealized value for Xerox shareholders
  • Provide greater clarity for Xerox customers
  • Help Xerox speed its transformation to a digital-first company

With the sale proceeds, Xerox expects to gradually pursue mergers and acquisitions in core and adjacent industries, return capital to shareholders, and pay down its $550 million December 2019 debt maturity.

The transaction is expected to occur this month, pending regulatory approval in Japan.

In a follow-up conversation Keypoint Intelligence had with Steve Bandroczak, president and CEO of Xerox, he noted that this transaction enables Xerox to accomplish a variety of objectives. These include goals such as continuing to differentiate with products and solutions and grow opportunities in existing and adjacent markets. To meet these goals Xerox will continue to evolve their rich portfolio of intellectual property and continue its collaborations with partners. It also opens the door to possible mergers & acquisitions – more on this later) based on the positive disposition of Xerox after this agreement.

The deal between Xerox and FujiFilm accounts for the needs of both companies to keep servicing their customers ensuring continuity of products parts and supplies through 2023, eliminating the previously looming lawsuit deadline of March 2020 that threatened to disrupt the supply chain and potentially hurt customers. This agreement is extended globally, enabling full customer support regarding parts and supplies.

Going forward, both companies will forge a path for new innovative technologies using differentiated intellectual property and product lines. This will allow each to effectively partner with or compete against one another in segments they are looking to address.

Xerox will be looking to continue its development across all of their served markets with technologies such as its new Xerox PrimeLink C9065 and C9070 Color Printers, as well as the Xerox C60 and C70 Color Printers. Additionally, Xerox will rely on assets such as XMPie and its portfolio and partnerships, along with workflow products, to continue to provide added value to customers.

Analysis of the Agreement

In the production space, Xerox and now FujiFilm can forge new futures for themselves by providing opportunities for PSPs to grow their business. Both Xerox, with its heritage in document printing serving enterprise quick print and commercial printing with page printing solutions, and FujiFilm and its now reformed division (formerly known as Fuji Xerox), will capitalize on their solutions across commercial printing, packaging, sign display graphics, as well as a renewed focus on enterprise document printing solutions.

It will be interesting to note how the two companies forge a strategy for the upcoming drupa, where the printing industry will come together to learn about innovations around Industry 4.0, sustainability, and the range of innovative print and finishing technologies.

Xerox, for its part, spun off Conduent Inc. its former business services division in early 2017, becoming a company that is focused on print technology. That divestiture helped it regain value ahead of entering the discussions with FujiFilm on now failed merger. With this agreement Xerox and with $2.3 billion in the bank, Xerox is looking to forge a new future for itself. With its EP product portfolio is as a baseline for Xerox in commercial, quick and enterprise printing, as well as SW solutions for advance communications, Xerox can address their current customers and attract new customers from adjacent segments. To be successful, Xerox must develop strategies, technology, go-to-market and channels to grow into packaging, sign display graphics, and other industrial segments.

As for FujiFilm, the company now can use its strong position in graphic arts segments such as commercial printing, packaging and sign & display (and related segments) to continue development of new digital solutions to augment its conventional prepress product portfolio – including the sheetfed FujiFilm 750S, alongside its roll-fed printing solutions, ink and media formulation, and a growing portfolio of wide-format printing. Following the separation from Xerox they can also insert new page printing solutions into the market aimed at a broader print service provider audience worldwide.

Xerox’s Potential Next Move

At the closing of the market yesterday there was a credible indications  that Xerox may indeed try to make good on its intent to seek M&A opportunities. According to CNBC reporting, Xerox offered HP $22 a share. If this proposed deal goes through, HP shareholders would retain 48% control of the company. HP acknowledged the offer with the following statement:

“As reviewed at HP’s most recent Securities Analyst Meeting, we have great confidence in our multi-year strategy and our ability to position the company for continued success in an evolving industry, particularly given the multiple levers available to drive value creation.

Against this backdrop, we have had conversations with Xerox Holdings Corporation (XRX) from time to time about a potential business combination. We have considered, among other things, what would be required to merit a transaction. Most recently, we received a proposal transmitted yesterday. 

We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline and an eye towards what is in the best interest of all our shareholders.”

While rumors have existed about Xerox discussions with HP for quite some time, these news developments give real fire to the idea that the acquisition may take place. Should this deal go through, it will create a sizable impact on the print industry going forward.

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