This Week in Imaging: Xerox Scrapping Fujifilm Deal Results in Only More Headaches
It seems more than ironic that Xerox’s decision in May to scrap a complicated deal under which Fujifilm would take over Xerox for $6.1 billion, with Xerox being merged with Fuji Xerox (and Xerox CEO and several Xerox board members resigning) was in part designed to get Xerox out of the headlines – as well as end the former Xerox CEO and board members’ bitter feud with activist investors Carl Icahn and Darwin Deason. However, the new Xerox management appears to have mistakenly assumed that Fujiflm would just go away – or at least offer a better deal – in particular $40 per Xerox share, versus the $32 per share under the abandoned previous deal.
Fujifilm however doesn’t appear to want to go away. First, Fujifilm filed a $1 billion breach-of-contract lawsuit against Xerox, while Fujifilm Chairman and CEO Shigetaka Komori – infuriated that Icahn and Deason, who hold about 13 to 15 percent of Xerox shares, torpedoed what has been Komori’s dream of owning Xerox – has stated that a deal could still be on.
The idea of a new deal with Fujifilm seems to have in turn infuriated newly appointed, Icahn-backed Xerox CEO John Visentin, who this week called Fujifilm’s hopes of still acquiring Xerox “delusional” in a published letter to Komori. Visentin also said Xerox wouldn’t renew its Fuji Xerox partnership in 2021, and would instead source products from other sources, and go it in alone in Asia-Pacific.
Komori, in turn, responded Wednesday with a public letter to Visentin, saying that, for its part, Fujifilm would go it alone in Xerox territory – the United States and Europe. (See our stories this week for a complete look at allegations on both sides).
The big questions at this point are:
From what company would Xerox source printers and copiers from?
Xerox has manufactured some of its printers, copiers, and supplies itself, and has also sourced from other companies, such as Samsung and Konica Minolta. In Webster, New York, it produces fusers, photoreceptors, Xerox iGen and Nuvera production-print systems, components, and consumables. Its other manufacturing operations are located in Dundalk, Ireland, for its high-end production products and consumables, and in Wilsonville, Oregon, for solid-ink printers, consumable supplies and components for its mid-range and entry-level products. Under its arrangement with Fuji Xerox, it purchases and sells various products.
Would either company succeed in invading the other’s territory?
Xerox’s Visentin stated that Xerox would sell on its own in Asia-Pacific without Fuji Xerox. Would Xerox be willing to spend huge amounts of cash to set up the direct sales, service, and distribution channels in Asia-Pacific that this would require? It hardly seems likely, as all along, both Icahn and Deason have seemed more bent on extracting more cash from Xerox – not investing more in it. And it seems such a network would take years to set up.
Similarly, Fujifilm, which already owns 75 percent of Fuji Xerox, would have to set up subsidiaries in North America and America. But it already has Asia-Pacific covered with subsidiaries in Australia, Indonesia, Taiwan, Japan, China, New Zealand, and other Asian-Pacific countries.
If Fujiflm chose to set up subsidiaries in the Americas and Europe, would it legally be able to market products with “Xerox” still in the “Fuji Xerox” name? If so, that would be a huge disadvantage for Xerox – to have another competitor in North America and Europe selling printers and copiers bearing the familiar Xerox name – a name that’s synonymous with copiers and has huge name-recognition value.
At the same time, Xerox competitors are gloating over the troubles at Xerox. As part of a plan announced last year, Xerox is continuing to try to sign-up multi-line copier dealers to sell Xerox products, and has, to date, signed up a number of them. But how long can that continue with the uncertainty surrounding Xerox and with competitors such as Canon, HP Inc., Ricoh, etc. more than willing take advantage of it? Meanwhile, Xerox’s share price has fallen from a high of $32.75 per share on February 1, 2018, a day after the scrapped Fujiflm deal was announced, to a low of $25 per share this week.
We don’t know how serious either company is about invading the other’s territory, but as the chart below shows, Fujiflm appears to be in a far stronger position than Xerox. Moreover, it’s litigation against Xerox is likely to continue for months, and HP Inc. CEO Dion Weisler recently said HP Inc. isn’t interested at this point in making any acquisitions over $10 billion, ruling out an HP Inc. acquisition of Xerox that had reportedly been discussed between the two companies last year.