NORWALK, Conn. —
- Transaction to create $11 billion Document
Technology company and $7 billion Business Process Outsourcing company in
tax free structure
- Separation, expected to be complete by end
of 2016, will maximize return to shareholders and align with current
market dynamics
- Announces strategic transformation program
anticipated to deliver $2.4 billion in savings over next 3 years across
both companies
Xerox (NYSE: XRX) announced today the results of its
review of the company’s portfolio and capital allocation options announced in
October 2015. The Board of the company has unanimously approved management's
plan to separate Xerox into two independent publicly- traded companies, each of
which will be a leader in its respective industry.
“Today Xerox is taking further affirmative steps to
drive shareholder value by announcing it will separate into two strong,
independent, publicly traded companies,” said Ursula Burns, chairman and chief executive officer of Xerox. “These two companies will
be well positioned to lead in their respective rapidly evolving markets and
capitalize on the opportunities that now exist to expand margins and increase
market share.”
“I am confident that the extensive structural review
we conducted over the last few months has produced the right path forward for
our company. We will now position the companies for success and execute our
plan to separate them in the shortest possible timeframe while continuing to
focus on achieving our 2016 goals,” added Burns.
New Company Details
The Document Technology company will continue to be a global leader in document management and document outsourcing with approximately $11 billion in 2015 revenue. It will lead the market with superior technology, solutions and innovations that optimize document management in an increasingly interconnected, digital world. Its strong profitability and free cash flow generation will enable significant capital return and provide for selective investments in attractive growth areas.
The Document Technology company will continue to be a global leader in document management and document outsourcing with approximately $11 billion in 2015 revenue. It will lead the market with superior technology, solutions and innovations that optimize document management in an increasingly interconnected, digital world. Its strong profitability and free cash flow generation will enable significant capital return and provide for selective investments in attractive growth areas.
The Business Process Outsourcing (BPO) company
will be an industry leader that helps clients improve the flow of work by
leveraging its expertise in managing transaction-intensive processes and
applying innovations to automate and simplify business processes. With
approximately $7 billion in 2015 revenue – more than 90% of which is annuity
based – the company is focused on attractive growth markets including
transportation, healthcare, commercial and government services. As an
independent company, BPO will have the focus and flexibility needed to continue
to adapt to the changing needs of its clients, further refine its portfolio of
services and pursue significant growth and margin expansion opportunities.
The leadership and names of the two companies will be
determined as the separation process progresses.
Separation Rationale
Today’s market realities require greater agility and flexibility, the ability to innovate and adapt technology to address clients’ fast-evolving needs, and a more focused and efficient approach to operations and capital allocation. As a result, it has become increasingly clear that the Document Technology and BPO businesses serve distinct client needs, have different growth drivers, and require customized operating models and capital structures. Thus, the separation of the two businesses will enhance their competitive positions and create significant value creation opportunities, including:
Today’s market realities require greater agility and flexibility, the ability to innovate and adapt technology to address clients’ fast-evolving needs, and a more focused and efficient approach to operations and capital allocation. As a result, it has become increasingly clear that the Document Technology and BPO businesses serve distinct client needs, have different growth drivers, and require customized operating models and capital structures. Thus, the separation of the two businesses will enhance their competitive positions and create significant value creation opportunities, including:
- Enhanced strategic and
operational focus. Each company will leverage its areas of
strength and differentiation to address distinct market trends and
opportunities. The Document Technology company will invest selectively in
growth areas while ensuring continued operational discipline and capturing
transformative productivity. The BPO company will focus on leadership in
attractive market segments to deliver differentiated solutions to its
clients and drive profitable revenue growth.
- Simplification of
organizational structure and resources. Each company will
be able to adapt faster to clients’ changing needs, address specific
market dynamics, target innovation and investments in select growth areas
and accelerate decision making processes.
- Distinct and clear
financial profiles. The separation will enable each company to
leverage its distinct growth profile and cash flow characteristics to
optimize its capital structure and capital allocation strategy.
- Compelling equity
investment cases. As standalone companies, both companies
will offer distinct and compelling investment propositions with
differentiated financial profiles, growth drivers and business prospects.
Strategic Transformation
Xerox also announced today a three year strategic transformation program targeting a cumulative $2.4 billion savings across all segments. The program is inclusive of ongoing activities and $600 million of incremental transformation initiatives. The company expects $700 million in annualized savings in 2016.
Xerox also announced today a three year strategic transformation program targeting a cumulative $2.4 billion savings across all segments. The program is inclusive of ongoing activities and $600 million of incremental transformation initiatives. The company expects $700 million in annualized savings in 2016.
“A core tenet of the strategic transformation we are
embarking on today is changing and improving the way we operationalize our
businesses. We have identified a plan to deliver cumulative reductions of $2.4
billion over the next three years as part of this process. I have instructed
our teams to begin work immediately to deliver the efficiencies needed to
achieve our goal,” Burns added.
Next Steps
Xerox will begin the process to separate into the two companies while it finalizes the transaction structure. Xerox’s objective is to complete the separation by year-end, subject to customary conditions, receipt of regulatory approvals, tax considerations, securing any necessary financing and final approval of the Xerox Board.
Xerox will begin the process to separate into the two companies while it finalizes the transaction structure. Xerox’s objective is to complete the separation by year-end, subject to customary conditions, receipt of regulatory approvals, tax considerations, securing any necessary financing and final approval of the Xerox Board.
The transaction is intended to be tax-free to Xerox
shareholders for federal income tax purposes.
Until the separation is complete, Xerox will continue
to operate as a single company and it will continue to be business as usual for
our customers and employees.
Advisors
Lazard and Goldman Sachs & Co are serving as financial advisors and Cravath, Swaine & Moore LLP is serving as legal advisor to Xerox. Centerview Partners is serving as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal advisor to the Board of Directors.
Lazard and Goldman Sachs & Co are serving as financial advisors and Cravath, Swaine & Moore LLP is serving as legal advisor to Xerox. Centerview Partners is serving as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal advisor to the Board of Directors.
Conference Call Details
Xerox will be hosting a conference call today at 10:00 a.m. ET. The live event can be accessed online at http://edge.media-server.com/m/p/rykhkkz7.
Xerox will be hosting a conference call today at 10:00 a.m. ET. The live event can be accessed online at http://edge.media-server.com/m/p/rykhkkz7.
An archived audio webcast of this event will be
available shortly following the conference call.
About Xerox
Xerox is helping change the way the world works. By applying our expertise in imaging, business process, analytics, automation and user-centric insights, we engineer the flow of work to provide greater productivity, efficiency and personalization. We conduct business in 180 countries, and our more than 140,000 employees create meaningful innovations and provide business process services, printing equipment, software and solutions that make a real difference for our clients – and their customers.
Xerox is helping change the way the world works. By applying our expertise in imaging, business process, analytics, automation and user-centric insights, we engineer the flow of work to provide greater productivity, efficiency and personalization. We conduct business in 180 countries, and our more than 140,000 employees create meaningful innovations and provide business process services, printing equipment, software and solutions that make a real difference for our clients – and their customers.
Forward-Looking Statements
This release contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements.
This release contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements.
These
statements reflect management’s current beliefs, assumptions and expectations,
including with respect to the proposed separation of the Business Process
Outsourcing ("BPO") business from the Document Technology and
Document Outsourcing business, the expected timetable for completing the
separation, the future financial and operating performance of each business,
the strategic and competitive advantages of each business, future opportunities
for each business and the expected amount of cost reductions that may be
realized in the cost transformation program, and are subject to a number of
factors that may cause actual results to differ materially.
Such factors
include but are not limited to: changes in economic conditions, political
conditions, trade protection measures, licensing requirements and tax matters
in the United States and in the foreign countries in which we do business;
changes in foreign currency exchange rates; our ability to successfully develop
new products, technologies and service offerings and to protect our
intellectual property rights; the risk that multi-year contracts with governmental
entities could be terminated prior to the end of the contract term and that
civil or criminal penalties and administrative sanctions could be imposed on us
if we fail to comply with the terms of such contracts and applicable law; the
risk that our bids do not accurately estimate the resources and costs required
to implement and service very complex, multi-year governmental and commercial
contracts, often in advance of the final determination of the full scope and
design of such contracts or as a result of the scope of such contracts being
changed during the life of such contracts; the risk that subcontractors,
software vendors and utility and network providers will not perform in a
timely, quality manner; service interruptions; actions of competitors and our
ability to promptly and effectively react to changing technologies and customer
expectations; our ability to obtain adequate pricing for our products and
services and to maintain and improve cost efficiency of operations, including
savings from restructuring actions and the relocation of our service delivery
centers; the risk that individually identifiable information of customers,
clients and employees could be inadvertently disclosed or disclosed as a result
of a breach of our security systems; the risk in the hiring and retention of
qualified personnel; the risk that unexpected costs will be incurred; our
ability to recover capital investments; the risk that our Services business
could be adversely affected if we are unsuccessful in managing the start-up of
new contracts; the collectability of our receivables for unbilled services
associated with very large, multi-year contracts; reliance on third parties,
including subcontractors, for manufacturing of products and provision of
services; our ability to expand equipment placements; interest rates, cost of
borrowing and access to credit markets; the risk that our products may not
comply with applicable worldwide regulatory requirements, particularly
environmental regulations and directives; the outcome of litigation and
regulatory proceedings to which we may be a party; the possibility that the
proposed separation of the BPO business from the Document Technology and
Document Outsourcing business will not be consummated within the anticipated
time period or at all, including as the result of regulatory, market or other
factors; the potential for disruption to our business in connection with the
proposed separation; the potential that BPO and Document Technology and
Document Outsourcing do not realize all of the expected benefits of the
separation; and other factors that are set forth in the “Risk Factors” section,
the “Legal Proceedings” section, the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section and other sections of
our Quarterly Reports on Form 10-Q for the quarters ended, March 31, 2015, June
30, 2015 and September 30, 2015 and our 2014 Annual Report on Form 10-K filed
with the Securities and Exchange Commission. Xerox assumes no obligation to
update any forward-looking statements as a result of new information or future
events or developments, except as required by law.
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