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Xerox Announces Forthcoming Business Shift
January 29, 2016
Today Xerox announced their plans to split into two separate companies during 2016 into what the OEM are calling "two strong, independent public companies". The split is designed to provide the best possible returns to shareholders while at the same time aligning the businesses to reflect current market dynamics. After the separation is complete, Xerox believes each will "benefit from greater strategic and operational focus, simpler organizational structures and more efficient allocation of capital".
CEO and Chairman Ursula Burns said, "Today Xerox is taking further affirmative steps to drive shareholder value by announcing it will separate into two strong, independent, publicly traded companies. 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."
One of the two new companies will be the Document Technology company who will continue Xerox’s success in document management and document outsourcing. This part of the current company accounted for roughly $11 billion in revenue in 2015. With leading edge technology, solutions, and services, it will provide optimized document management in a world that is shifting increasingly towards digital. With its profitability and free cash flow generation, Xerox expects significant capital return and provide a financial means for the company to invest further into what they call attractive growth areas.
The other new company will be the Business Process Outsourcing (BPO) company. It will focus on improving the flow of work by leveraging new and existing ways for customers to handle transaction-intensive processes and make use of innovations to further automate and simplify business processes. Like the Document Technology portion of Xerox, this segment also had a fruitful 2015, accounting for $7 billion in revenue, with over 90% based on annuities. The company will concentrate its efforts on growth markets such as transportation, healthcare, commercial, and government services. With its independence, Xerox believes it will be able to more easily adapt to the needs of its clients, further refine its portfolio of services, and pursue substantial growth and margin expansion opportunities.
At present, the leadership and formal names of these two companies has not been determined and will evolve over the course of the separation in 2016.
According to Xerox, the choice to separate came out of the realization that the Document Technology and BPO businesses each serve a distinct type of client, have different growth drivers, and need customized operating models as well as capital structures. The company believes that separation of these two entities inside the Xerox umbrella will improve their competitive positions and result in the following value creation opportunities:
In addition to the news about the forthcoming separation, Xerox also today unveiled a three year strategic transformation program that seeks to generate $2.4 billion in savings across the entire corporation. Including in the plans are current measures as well as future incremental initiatives which are estimated to net $600 million during the transformation. In 2016, the company believes they can reach $700 million in annualized savings with the measures.
Burns states with regards to these changes that , "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."
Moving forward, the company will begin the process of separation and prepare the organization for the split while determining the final transaction structure. While the goal is to have everything completed by the end of this year, the way in which it is carried out is subject to the approval of the Xerox Board.
Up to the actual separation, Xerox will continue to operate as a single company and assures that it will be "business as usual for our customers and employees". More details can be found at www.xeroxpathforward.com