Xerox taps Goldman for review, sources say
Xerox (NYSE:XRX) is working with Goldman Sachs as it reviews options for its portfolio of assets, said three sources briefed on the matter.
Potential strategic buyers have registered interest with Xerox for various assets, one of the sources said. Still, two of the two sources said they believe Xerox’s review remains at an internal study phase.
Xerox and Goldman declined comment.
The move comes as Carl Icahn has launched an activist campaign to urge Xerox to pursue strategic alternatives and seek board representation. Icahn owns around an 8% stake in the Norwalk, Connecticut-based technology company.
CEO Ursula Burns disclosed in October that Xerox had started a portfolio and capital allocation review. She declined to say on an earnings call if the board had engaged advisors or to offer a timeframe on the review. Earlier this month, Xerox extended the deadline to nominate directors for its 2016 shareholder meeting to 29 January.
Best known for its photocopy machines, Xerox also has a sizable business that provides outsourcing services to companies and governments. There have long been questions about whether it makes sense for Xerox to own document technology and services businesses.
One option would be to merge Xerox’s document business with HP (NYSE:HPQ) through a spin off, the second source and a sector advisor said. Xerox’s business focuses on serving enterprise customers, while HP develops printers for consumers and businesses.
This fall, Hewlett-Packard completed a breakup that split it into HP, focused on computers and printers, and Hewlett Packard Enterprise (NYSE:HPE), a software and technology services group. A second sector advisor described Xerox is a smaller scale version of HP.
Among the arguments for preserving Xerox’s structure is that both segments serve the same customer base, said the first sector advisor. “I don’t see that dismembering the business would unlock value,” said this adviser, adding that he does not believe Xerox is undervalued.
The second advisor said while there is an opportunity for cross selling, the sale proposition is different for the two businesses.
Last year, Xerox sold its information technology outsourcing business to France’s Atos (EPA:ATO) for USD 1bn with the help of Goldman. This was Xerox’s worst performing services business and it may be under less pressure to sell off other pieces, the second source said.
Xerox has made a major push into services in recent years in part to secure more recurring revenue. In 2007 it acquired services company Global Imaging Solutions for USD 1.5bn and three years later acquired Affiliated Computer Services (ACS), a major business process outsourcing (BPO) provider, for USD 7bn.
Since then, the BPO industry has suffered in general and a number of companies have launched restructurings or looked to merge or breakup.
Xerox serves industries ranging from automotive to healthcare to insurance. Its healthcare assets in particular are attractive to potential suitors, two of the sources said.
Over the past nine months, Xerox has seen revenue decline across its services and document technology businesses for a total of 8%. Its stock is down 27% year to date, giving it a market cap of around USD 10bn.