In Big Shakeup, Xerox to Exit Fuji Xerox Partnership

Though unexpected, the signs have actually been there all along. Back in May 2018, Xerox CEO sent a letter to Fujifilm Chairman and CEO Shigetaka Komori stating that Xerox may not renew its joint partnership in Fuji Xerox, which was set to end in 2021.  Activist Xerox investor Carl Icahn, as well as Visentin, have also repeatedly made statements that Xerox would be re-examining its sourcing of printer/MFP hardware from Fuji Xerox. And, earlier this year, Xerox announced an expanded partnership with HP Inc., under which it’s sourcing printer/MFP hardware.

Today, Xerox announced that it will be selling its 25-percent stake in Fuji Xerox – its 57-year-old joint venture with Fujifilm – for $2.3 billion. Fujifilm has a 75-percent stake in Fuji Xerox; the sale would give it a 100-percent stake.

The new deal comes after Xerox ended a complicated deal under which Fujifilm would have acquired Xerox and merged it into Fuji Xerox – with Fujifilm retaining control of the new company. That deal was ended after investors Icahn and Darwin Deason protested, stating that Xerox was being sold off too cheaply. The two negotiated a deal with the Xerox board under which the deal would be scrapped, and certain Xerox board members would resign – in return for which, those board members would be released from litigation.

Xerox Product Supply to Continue

Under the new agreement, Xerox stated there would be modified sourcing terms for future product programs “that will ensure Xerox’s product supply continues.”

Xerox will also be selling to Fuji Xerox its 51-percent stake in Xerox International Partners (XIP), an OEM joint venture between Xerox and Fuji Xerox, which, together with the grant of a new IP license, will allow Fuji Xerox to OEM certain products (such as printer engines) to named parties that are existing customers of XIP on a worldwide basis in exchange for a fixed royalty.

$1 Billion Lawsuit Dismissed – Fujifilm Gives up on Takeover

In major goods news for Xerox, Fujifilm’s $1 billion lawsuit that it had filed against Xerox for the termination of the merger has been dismissed.

This means that Fujifilm is giving up on acquiring Xerox once-and-for-all. As recently as this spring, Fujifilm still seemed interested on acquiring Xerox, with, for instance, Fujifilm Chief Operating Officer Kenji Sukeno stating “we will thoroughly explain its (Xerox acquisition’s) validity and legitimacy in the courts.” With the dismissal of its lawsuit, Fujifilm is likely giving up on this, settling instead for a 100-percent stake in Fuji Xerox.

However, Fujifilm CEO Komori said he doesn’t have “hard feelings” about giving up on Xerox, according to The Wall Street Journal, and also said, “Honestly, this agreement is better.”

With the $2.3 billion proceeds from the sale, Xerox says it will pursue mergers and acquisitions in core and adjacent industries, return capital to shareholders, as well as pay down its $550 million December 2019 debt maturity.

The agreements were unanimously approved by Xerox’s board of directors of Xerox and don’t require a shareholder vote. However, the sale is subject to regulatory approval in Japan. Xerox expects to close this month.

John Visentin, vice chairman and CEO of Xerox, commented: “These agreements reset our relationship with FUJIFILM and provide both companies with tremendous opportunities to grow, together and independently. These agreements also unlock significant unrealized value for our shareholders, provide greater clarity for our customers and help us speed our transformation to a digital-first company.”

Our Take

The good and the bad: one clear win for Xerox is the dismissal of Fujfilm’s $1 billion lawsuit.

On the other hand, once the deal goes through, it appears that Xerox – the 113-year-old iconic American photocopier company – will no longer be making copiers, MFPs, or printers – but will be instead sourcing them from other companies.  This may not actually be a big deal – after all, HP has been sourcing its laser printer engines from Canon Inc. for decades. And, as we’ve seen, the hardware aspect of “speeds and feeds” has become increasingly less important. Instead, solutions as Xerox’s ConnectKey platform have become a main differentiator in the office printer/MFP market.

On the other hand, by selling its stake in Fuji Xerox, Xerox loses its channel in Asia-Pacific.

Additionally, last year, Fujifilm had threatened to sell Fuji Xerox hardware in North America and Europe if Xerox decided not to renew the joint Fuji Xerox partnership. While Fujifilm and Xerox have appeared to have come to a truce of sorts, what would happen if Fujifilm decided to carry this threat through? How would Xerox customers react if Fujifilm began selling Fuji Xerox-brand printers and MFPs in North America and Europe – machines that had nothing to with Xerox itself but were still labeled “Xerox”?

As for Fujifilm, the deal gives it a clean break from the whole bitter battle it’s been waging with Xerox – primarily with investors Icahn and Deason – since last year, a war that in our option it was never likely to win.

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