This Week in Imaging: Icahn, Deason Say Sell Xerox to Competitor or PE – But Who Would Buy?

This week, the Xerox-Fuji Xerox merger saga continued with a back-and-forth campaign designed to sway Xerox shareholders to either vote for the merger (as recommended by Xerox leadership) or against the merger (as recommended by Xerox investors Carl Icahn and Darwin Deason). From one important perspective, the Xerox-Fuji Xerox merger makes a lot of sense, as Fuji Xerox of Japan is well-established throughout Asia-Pacific, where printing and copying is much stronger, and the merger could give Xerox access into those markets. Nevertheless, Icahn and Deason refuse to pipe down.

More recently, this week, Icahn and Deason again urged Xerox and its shareholders to reject the proposed Xerox-Fuji Xerox merger (with Fujifilm gaining a controlling 50.1 percent of the new merged company’s shares). Icahn and Deason own about 15 percent of Xerox shares, with Icahn entities’ currently owning about 9.2 percent of Xerox shares.

Instead, they also proposed instead two alternatives: consolidate with or sell Xerox to one of Xerox’s competitors, or to a private equity firm. This, they stated, would optimize the Xerox business and return it to growth. They also speculated that either a competitor or private-equity firm would pay a large premium for Xerox “once they truly understood they could get around the Fuji Xerox joint venture agreements and eventually operate unfettered in Asia using the Xerox trademark and Xerox’s many patents.”

While this may sound good, we find both alternatives entirely unrealistic.

First, what competitor would actually consider purchasing Xerox? It’s highly unlikely that U.S.-based HP Inc. would purchase Xerox after just paying $1.05 billion last year to purchase Samsung’s Printing Solutions Business. In the printer/copier industry that essentially leaves: Brother International, Epson, Canon Inc., Konica Minolta, Kyocera, Lexmark International (now owned by Ninestar of China), OKI Data, Ricoh, Toshiba, and Sharp Corporation (now owned by Foxconn of Taiwan). Does anyone seriously think that any of these companies could afford – much less want to purchase Xerox? (No offense to Xerox.) Perhaps Foxconn could, but Foxconn has already placed its bets in the copier industry on Sharp. Last summer, Konica Minolta purchased Muratec. And the purchase seems like it would be out-of-the-question for two vendors, Ricoh and Toshiba Corporation, both of which are focusing on emerging from financial difficulties.

More importantly, day-in-and-day-out, virtually all of these companies stress that their current strategy is to diversify out of the office-imaging industry – into IT services, robotics, healthcare, security, and more (Canon is even researching low-cost space rockets). Why would any of them make a huge investment back into office imaging and production printing? And which would want to take on Xerox’s huge direct sales force, as nearly all of the copier competitors (with the exception of HP Inc.) have been relying on independent dealers for the last decade?

Similarly, which competitor would want the product overlap, as any competitor that has the potential to buy Xerox already has similar product lines. Xerox’s considerable investments made in high-end Xerox technology would likely go to waste, and numerous domestic R&D, engineering, and production facilities might be shut down.

How about the two investors’ proposal to sell to a private-equity firm? If one could be found, what would they do with Xerox? In the past, all too often we’ve seen private-equity firms moving in, borrowing money to buy the company and then loading up the company with that debt, then beginning a process of firing employees, stripping assets and selling everything that can’t be nailed down, extracting million-dollar fees, then shutting the whole thing down, and running off into the night with big profits. No more Xerox.

Maybe that wouldn’t happen – but maybe it would. We don’t know, and neither do Icahn or Deason. One thing’s probably for sure, although private equity might conceivably be interested, it’s highly unlikely a competitor would wish to purchase Xerox.

More Resources

• February 2018: Xerox Responds to Icahn, Deason’s ‘Misguided Campaign’ to Undermine Proposed Fuji Xerox Merger
• February 2018: Icahn, Deason Propose Sale of Xerox to Competitor or Private-Equity Firm
• February 2018: This Week in Imaging: Fujifilm Envisions the New Combined Xerox-Fuji Xerox
• February 2018: Xerox Responds to Deason Lawsuit that Seeks to Block Merger
• February 2018: Deason Files Lawsuit to Block Fujifilm Takeover of Xerox; Xerox Responds to Criticism
• February 2018: Combined Xerox and Fuji Xerox Will Create One of World’s Largest Copier Companies, Says Fujifilm CEO
• January 2018: Xerox and Fujifilm Announce Agreement for Xerox to Merge with Fuji Xerox
• January 2018: Xerox Reports Strong Fourth-Quarter 2017 Results, 65 Dealers Signed
• January 2018: Icahn, Deason Call for Xerox CEO, Directors Replacement, Renegotiation of Fuji Xerox Partnership
• January 2018: Deason, Shareholders, Demand Xerox Disclose Potential ‘Value-Destroying’ Fujifilm Deal
• January 2018: Under Pressure from Icahn and Seeking New Growth, Xerox May be Negotiating Deal with Fujifilm
• December 2017: Billionaire Investor Icahn Blasts Xerox Board, Says Xerox ‘Desperately Needs New Leadership’
• December 2017: Carl Icahn to Nominate Four Directors to Xerox Board
• June 2016: Carl Icahn Adds Christodoro to Xerox Board of Directors