Money Matters - Simplified

Xerox to buy ACS to expand into services

The deal, which is company’s biggest acquisition in its 103-year history, will enable Xerox to offset declining profits in hardware business

New York, September 29 -- In a bold attempt towards expansion into services, Xerox Corp Monday unveiled its plan to acquire Affiliated Computer Services (ACS) Inc. for $5.6 billion in cash and shares deal.

Xerox will pay $18.60 a share in cash and 4.935 Xerox shares for each share of ACS. The company will also takeover ACS’s debt, worth around $2 billion, as part of the acquisition.

Xerox, a name synonymous with photocopying, is the biggest global supplier of digital printer and document management services.

"By combining Xerox's strengths in document technology with ACS's expertise in managing and automating work processes, we're creating a new class of solution provider," Xerox Chief Executive Officer Ursula M. Burns said in a statement. "A game-changer for Xerox, acquiring ACS helps us expand our business and benefit from stronger revenue and earnings growth."

Acquisition to counter declining hardware revenues
The deal, which is company’s biggest acquisition in its 103-year history, will enable Xerox to offset declining profits in hardware business.

Currently, the company is facing a tough time. Sales are expected to plunge 16 percent to $14.8 billion this year. Xerox’s profits plummeted 35 percent to $140 million in the quarter ended June 30.

Last October, the company had laid off 3,000 workers, approximately 5 percent of its work force.

"The way we were going was going to take 10 years," Burns stated. "The path we were on wouldn't have given us scale fast enough."

ACS specializes in paper-oriented works such as billing and claims processing for governments and private companies, and its acquisition will give Xerox a bigger foothold in health care and government services; two areas sure to benefit from government’s economic stimulus package.

Talking about ACS, Burns said, "There's no doubt it's good news that they're critical to health-care IT. This is where the money is being spent."

The company expects to save $300 million to $400 million in the first three years after completing the acquisition process in the first quarter of the next fiscal year.

Big deals indicate restored confidence
The acquisition by Xerox is the latest in the series of such deals signed lately by big brand companies to capitalize on global recovery.

Over the previous year, mergers and acquisitions had plunged amid global financial crisis, when executives grappled in trying to understand how to sail through the economic downturn. But now the market is rebounding.

Abbott Laboratories on Monday agreed to buy a unit of Solvay of Belgium for $6.6 billion.

Last week, Dell Inc. announced its plan to takeover Perot Systems Corp. for $3.9 million.

Recently, Walt Disney Co. agreed to buy Marvel Entertainment Inc. for $4 billion, and Kraft Foods Inc. announced acquisition of Cadbury PLC for $16.7 billion.

“The psychology has changed. This is sign that things have stabilized,” said Boon Sim, Credit Suisse’s head of mergers and acquisitions.

He added that the executives are beginning to believe that if they do not buy now, it will get more expensive in the coming months.