Xerox Copies HP With Split Into Two Companies

The breakup marks the end of Xerox's attempt to marry services for government agencies and corporations with its copiers and printers.
Katie Kuehner-HebertJanuary 29, 2016

Xerox on Friday said it would split into a document technology company and a business services company in a move to become more flexible and responsive in each of those businesses.

The split continues a trend in corporate America of diversified companies breaking up into more highly specialized pieces. Xerox rival Hewlett-Packard made a similar move last fall.

“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,” Xerox CEO Ursula Burns said in a news release.

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The document technology company last year generated roughly $11 billion in revenue, while business services generated roughly $7 billion.

Investor Carl Icahn, who disclosed a stake in Xerox in November, will get three seats on the new business service company’s board.

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As recently as October, Burns endorsed keeping Xerox’s two units under the same roof. “We do see, to date, strategic value in having these two businesses together,” she said.

But according to the Wall Street Journal, “that formula has been sputtering. While Xerox’s services business has grown in past years, it hasn’t earned enough to counter the slide in its traditional hardware operation.”

The WSJ noted that the separation will unravel Burns’s “signature deal,” the 2010 purchase of Affiliated Computer Services for about $6 billion, which pushed Xerox deeper into providing bill processing, managing call centers and other back-office services to government agencies and corporations.

Splitting Xerox’s printer business from its service divisions could undo gains from the ACS deal, including cost savings, Piper Jaffray analyst George Tong said, warning that the transaction was fraught with risk.

Xerox shares were up nearly 5%, at $9.69, in trading Friday.

Burns told CNBC that Icahn was not the driving force in the decision to split the company into two. “We’re happy that he is in support of it, but he had nothing to do with the initiation, the contemplation, the analysis, or any discussion around the deal,” she said.

“We think this is a major move and will greatly enhance shareholder value,” Icahn said.