Xerox Holdings Corporation has announced its intention to acquire Lexmark International for a substantial $1.5 billion, including assumed liabilities. This move, unprecedented for both companies, is aimed at transforming Xerox's operational dynamics and enhancing its presence within the print industry.
According to the companies involved, the acquisition strategically aligns with Xerox's Reinvention turnaround plan. The deal has been brokered with the current owners of Lexmark: Ninestar Corporation, PAG Asia Capital, and Shanghai Shouda Investment Centre, who will exit their investment with this sale. "By combining our capabilities, we will be positioned to drive long-term profitable growth and serve our clients, furthring our Reinvention," stated Xerox CEO Steve Bandrowczak.
The acquisition is timely, as Xerox grapples with declining revenues over the past year, increasingly pressured by competitors like HP and Canon. This deal is expected to close by the second half of 2025, with both organizations slated to operate independently until then.
Lexmark, which originated from IBM, has had its ownership under Chinese investors since 2016. The transition back to U.S. management marks another significant shift within the industry. Lexmark has long been known for its manufacturing of multiuse printers and providing exceptional solutions within the printing sector. "Lexmark has a proud history of serving our customers with world-class technology, solutions and services, and we are excited to join Xerox and expand our reach with shared talent and a stronger portfolio of offerings," said Allen Waugerman, CEO of Lexmark.
The acquisition emphasizes Xerox’s strategic intent to diversify its operations, particularly focusing on the lucrative A4 color market, which is highlighted for its substantial profit potential through high-margin supplies. Adding Lexmark’s resources is expected to solidify Xerox's position as they target growth not only domestically but also significantly within the Asia-Pacific region.
Xerox plans to streamline operations through improved efficiencies, seeking over $200 million of cost synergies within the first two years post-acquisition. "We expect to achieve these operational synergies smoothly, allowing both companies to maintain their competitive edge," noted company representatives.
To fund this acquisition, Xerox has advised it will significantly cut its annual dividend by 50%, from $1 to $0.50 per share, which aims to provide "incremental capacity to reduce debt" according to insiders. This marks the first dividend adjustment since 2017, and investors appear cautiously optimistic about this adjustment amid the broader strategy for sustained growth.
The latest financial metrics indicate the combined strength of both organizations, citing over $8 billion generated from recent revenues, creating a powerful entity poised among the top five companies globally across various print market segments. With operations spanning over 200,000 clients across 170 countries and backed by 125 manufacturing and distribution facilities, this partnership could redefine market dynamics.
Reflecting on its performance for 2023, Xerox has seen its shares drop more than 50%, leading to heightened scrutiny of its operational strategies. Nonetheless, this acquisition signifies bold steps forward as included market projections suggest the potential to attain adjusted operating margins exceeding 8.4% soon after the merger.
Despite past challenges, the Xerox leadership believes the Lexmark acquisition will provide necessary resources to reinvigorate the company, ensuring they reclaim their position within the highly competitive print services market. Management remains adamant about overcoming present hurdles through strategic acquisitions like this one and fostering healthier sales productivity moving forward.
With both companies stepping toward integration, the effects of this acquisition will be monitored closely within the industry. Corporate analysts predict potential shifts in consumer preferences as the combined services offer new possibilities catering to remote and hybrid workforce needs.
On the horizon, as the timeline progresses through 2025 and beyond, the evolution of Xerox with Lexmark could signal significant advancements within the print segment, directly aimed at satisfying the demands of modern workplaces.
