Xerox announced plans Friday to spin off the Affiliated Computer Services business unit it acquired in 2010 as a separate publicly traded Business Process Outsourcing company.
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Xerox is planning to cut costs over the next three years that will result in $2.4 billion in savings across the two companies, of which $700 million is expected for 2016.
“These two companies will be well positioned to lead in their respective rapidly evolving markets and capitalise on the opportunities that now exist to expand margins and increase market share”.
Billionaire investor Carl Icahn, who has amassed a more than 8 percent stake in Xerox, was rumored to have had something to do with the decision to split into two companies.
A month later, Carl C. Icahn started amassing a stake in Xerox that reached 8.13 percent by December.
Icahn will be given the seats on the board of the company holding Xerox’s services business, the Journal reported. The activist investor may delegate a committee adviser for the search of a new CEO.
Headquartered in Norwalk, Connecticut, Xerox has more than 130,000 employees in over 180 countries.
Xerox’s services division represented 57 percent of total revenue but was down three percent in constant or flat currency.
Shares jumped more than 3 percent in Friday premarket trading.
The turbulent company will be split into two public limited entities. In the past five years, Xerox’s revenue has declined at a rate of 1.2% and free cash flow at a rate of 7.1% on average annually.
“The benefits of separation outweigh the benefits of the current structure”, she said, calling each of the two groups “strong businesses” that face “different market realities”. Document Technology would have had about $11 billion in revenue. However, the biggest question raised by Xerox’s move is how the document technology side of the business will now evolve going forward, she noted. The news is expected to be announced officially during the company’s fourth-quarter earnings report Friday.
By this strategy, Xerox would be taking a leaf from the some of its peers like Hewlett-Packard, which split into an enterprise-focused company and another that sells printers and PCs. The Company’s Document Technology segment includes the sale of products and supplies, as well as the associated technical service and financing of those products.
New York Sen. Charles Schumer, a Democrat, said he was concerned about the impact the split could have on jobs in Rochester, but said he was reassured by Xerox CEO Ursula Burns the workforce levels would stay intact.
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The Board of Directors of the company unanimously approved the creation of a Document Technology company and Business Process Outsourcing company after completing a comprehensive structural review.
