This Week in Imaging: Will Fuji Compete with Xerox – and Will Xerox Acquire HP?
This week’s big news was the announcement that Fujifilm will seek to acquire Xerox’s 25-stake in Fuji Xerox – effectively ending Fujifilm’s pursuit of a merger with Xerox – as well as confirmation from HP Inc. that Xerox had submitted a proposal to purchase HP.
But, back to Fujifilm. Under the new agreement this week, Xerox would still source hardware from Fuji Xerox. (It also sources hardware from HP Inc. – basically Samsung hardware that HP acquired when it purchased Samsung’s printer group.) But Fujifilm would also be free to OEM its hardware to other vendors.
According to the Nikkei Asian Review, a Xerox-Fujifilm technology contract setting out trademark rights and regional sales boundaries is set to expire in 2021, and Xerox has indicated that it doesn’t want to renew.
According to the Nikkei Asian Review, if the agreement is allowed to expire, Fuji Xerox will no longer be able to use the Xerox brand, and Xerox will be free to enter the growing Asian market, now reserved for Fuji Xerox.
This would also open up the United States and Europe to Fuji Xerox. But considering that office printing has been slowing the most in these two regions, would Fuji Xerox even want to give selling there a go? Moreover, Xerox traditionally enhanced Fuji Xerox products to fit North American/European customers’ languages and use, something Fuji Xerox would now have to do.
Xerox to Buy HP?
Perhaps the most unexpected development in the Xerox saga came this week, when The Wall Street Journal reported that Xerox is seeking to buy HP, with HP confirming that it had received a proposal for such an acquisition from Xerox. Previously, if any acquiring was to occur, most analysts thought it would be the larger HP acquiring the smaller Xerox, not the other way around.
Nevertheless, such a merger would unite a copier king with a printer king, making an HP-Xerox company likely the largest office-imaging company in the world. But is it likely?
One answer might involve a look at the ultimate goals of two Xerox investors Carl Icahn and Darwin Deason, who effectively took over Xerox last year, installing their preferred management.
The goal of the two isn’t to create the world’s largest copier/printer company, but instead appears to drive the Xerox share price to $40 and then sell Xerox. The two investors were responsible for derailing the original January 28, 2018 deal with Fujifilm not because of any animosity towards Fujifilm, but because they thought Xerox was being sold too cheaply, and instead wanted a higher $40 per share price, which Fujifilm refused to pay.
At this point, Xerox’s share price has been hovering at at about $34, and although earnings have been increasing, revenues have not, so that earnings increases are likely due to cost savings, such as those generated under Xerox’s Project Own It.
A Xerox leveraged acquisition of HP (via financing from Citigroup) and combining it with Xerox would likely increase Xerox’s share price – indeed, this week Xerox’s share price shot up to $37 per share, likely based on the HP and Fuji Xerox news. Whether HP will agree to sell is another story. While a merger with Xerox would give HP very valuable access to Xerox’s A3 channel, and economy-of-scale cost savings, would HP consent to being under the control of investors Icahn and Deason, whose ultimate to goal is to get to $40 per share and then sell? (According to Bloomberg, under Xerox’s proposal, Xerox’s current CEO, Icahn-backed John Visentin, would run the new merged company.) And Xerox is a company where earnings have been growing, but revenues have not. We tend to think HP won’t go for it, and still maintain that if any acquisition is to occur, it will be HP acquiring Xerox. Meanwhile, Xerox is said to have given HP a week to decide, so we should know the answer shortly.
This Week in Imaging