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Extracting value from Xerox-ACS

Extracting value from Xerox-ACS

Xerox shares are trading down 25% on a year ago. Chairman and CEO Ursula Burns is still carrying the burden of her predecessor buying outsourcing company ACS for $8.5Bn in September 2009, an acquisition which, at the time, the markets reacted very badly to driving the share price down 20% (as of writing the shares trade a few cents higher than 30 months ago). This is how the ACS transaction was parcelled up – the $8.5Bn (included $6.9 billion in cash and stock, the repayment of $1.7Bn of debt and assumption of a further $0.6Bn of debt). Given that at the time of the transaction, ACS had a book value of only $2.7Bn this implies goodwill of about $6Bn.

Was this value for the shareholders?

Some two and a half year later have we heard much news on progress? Have there been major contractual wins or successes? Is ACS integrated within Xerox’s service portfolio? Has the strategy to kick-start growth in the services market worked?

A visit to the Xerox website shows IT services, but click on that and you get diverted to a new website namely, http://www.acs-inc.com/information-technology-outsourcing.aspx. So we guess that this answers the questions on ACS’ integration or assimilation into Xerox, and illustrates how few service lines are grouped into what should be, by now, a single seamless company.

Xerox’s market cap is today $10.36Bn. But shareholders will remember that ACS cost $8.5Bn (including assumption of debt) and that the Xerox board has also paid another $3.9Bn in cash for other acquisitions in the last five years. Is it any wonder then that Xerox looks very vulnerable to a predatory takeover right now? Would HP be allowed to consolidate its print interests with Xerox and its sadly unacknowledged outsourcing services arm with ACS? Would IBM or CSC buy Xerox to acquire ACS and sell-on the print assets to Cannon, Epson, or Lexmark?

In February 2012 Xerox – ACS followed its many competitors in rolling out an infrastructure as a service (IAAS) cloud offering including support for IBM “i workloads”. This should allow small to midsized businesses to run their IBM i, Linux, AIX, and MSWindows applications on Xerox owned and managed servers. Interestingly Xerox (with a $21Bn turnover) also allows for a wholesale approach whereby ‘partners’ can white label the cloud offering to their own clients. Something others will undoubtedly copy.

But Cloud is a “deep pockets” game and it will suit players like IBM far more than an under-performing service provider like Xerox.

Whichever way you look at it, with a company worth only about $10Bn, any Xerox shareholder has a long way to catch up on achieving value in a fiercely competitive and currently stagnant market.

Few shareholders would baulk at a friendly or even a hostile takeover bid.

Posted in Suppliers Comments: one

 

One Response to Extracting value from Xerox-ACS

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