Xerox Seeking to Become Wholly Owned Subsidiary

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In its Form 8-K that it filed with the U.S. Securities and Exchange Commission (SEC) yesterday, Xerox announced that its board of directors had approved a plan for Xerox to become a “direct, wholly-owned subsidiary of a new holding company.”

The purpose of the reorganization is said to provide Xerox with “strategic, operational, and financial flexibility.” Xerox stated that its business operations, directors, and executive officers would stay the same. Xerox would also continue to trade as “XRX” on the New York Stock Exchange.

The reorganization is intended to be implemented via a tax-free transaction for U.S. federal income tax purposes. Each holder of Xerox stock would own the same number of shares of common stock in the new holding company, and each holder of Xerox’s preferred stock would own the same number of shares of preferred stock in the new holding company.

According to The Street, there are several advantages for a parent company owning a wholly owned subsidiary, among them being that the subsidiary is legally separate from the parent company: “… as an independent entity, a subsidiary is responsible for its own legal liabilities as well as its debts and taxes. This means that lawsuits against the subsidiary cannot collect against the parent company’s assets, only those of the subsidiary.”

Fujifilm Lawsuit

Interestingly, the proposed reorganization comes just a few weeks after a New York judge’s decision not to dismiss Fujifilm’s $1 billion lawsuit against Xerox for Xerox’s termination of a complicated Fujifilm-Xerox merger. Under the proposed reorganization, it would appear that it’s possible that the owners of the new holding company owning Xerox could not be considered legally liable for any judgement awarded to Fujiflm. This of course assumes that 1) the Xerox reorganization is implemented, and 2) Fujifilm is awarded a judgement against Xerox.

According to Investopedia, another benefit of forming a holding company is that is that the holding company itself is protected from losses: “If one of its companies goes bankrupt, the holding company experiences a capital loss and a decline in net worth, but the bankrupt company’s debtors and creditors can’t pursue the holding company for remuneration.”

Other benefits may include tax benefits and making a business “more sellable” according to some sources.

As for the reorganization itself, it will be subject to shareholder approval, regulatory approval, and other customary conditions, and Xerox expects to implement it in mid-2019.

Other details and information will be included in a joint proxy statement/prospectus relating to Xerox’s 2019 annual meeting of shareholders, which will be mailed to shareholders when available.

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