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Xerox to make like an HP - and split

Xerox joins a popular club, as it announces that it is to separate into two public companies, following a comprehensive structural review

Xerox last week announced that it is to break up its business into two separate companies.

The 110-year-old business will split into two publicly traded companies – with one focusing on document technology such as printers and copiers, while the other focuses on business process services (BPS).

The news comes just weeks after rival copier-maker Lexmark announced similar plans and two months after HP kicked off the trend, splitting its business in two. However, in Xerox’s case, the path to a breakup decision is much easier to plot. 

In 2009, the copy-king made the high-risk decision to acquire Affiliated Computer Services (ACS). The $6.4bn deal, which was spearheaded by CEO Ursula M. Burns, was designed to help drag Xerox into the digital age by giving it a presence in the rapidly growing BPO market.

It was a bold move, and in another time and place, could easily have been heralded as a stroke of genius. However, the two businesses failed to synergise and it quickly became apparent that Xerox had bitten off more than it could chew. Carl Icahn, a billionaire activist investor, and the second largest shareholder in the company, started making noise, calling for drastic measures.

Burns, who started out as a Xerox intern and eventually climbed the ranks to become the first black female CEO of a large corporation in the US, was still publicly defending the acqusition back in October. However, by November, the fate of the company had been sealed and the board began looking at “strategic alternatives”.

On Friday, the split became official. Xerox said that it plans to cut circa $2.4bn in costs across the two companies over the next three years. No specific details were offered with regards to where these savings would come from. The company has more than 140,000 employees globally.

As part of the split, Icahn has been granted the opportunity to appoint three members to the board of the new services company.

In a canned statement on Friday, Burns said: "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."

"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."

TMV analyst John O’Brien said that the split was Xerox’s best chance of success.

“This separation is exactly the bold decision Xerox needs to take to have a chance of re-igniting its fortunes in the digital age,” O’Brien commented. “The problem is it should have happened much sooner, since competitors like HP are simply far further, far faster.”

Specifics such as leadership changes have not been revealed. In an interview with CNBC, the CEO said that her role ‘was yet to be determined’.

Xerox’s share price increased by 6% following the news of the breakup.

 

 

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This is a trend that’s becoming more the norm as older, established businesses (yes, and some newer, more aggressively growing businesses) realize that the way business is done has shifted, and monolithic org structure can do more harm than good.
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