The Board of Xerox has announced the company will be separated into two independent publicly traded companies – a Document Technology company and a Business Process Outsourcing (BPO) Company – by the end of 2016.
The Document Technology company will focus on document management and document outsourcing with approximately $11 billion in 2015 revenue. The Business Process Outsourcing company will help clients improve the flow of work by leveraging its expertise in managing transaction-intensive processes and applying innovations to automate and simplify business processes. With approximately $7 billion in 2015 revenue – more than 90% of which is annuity based – the company is focused on attractive growth markets including transportation, healthcare, commercial and government services. The leadership and names of the two companies will be determined as the separation process progresses.
According to Xerox, the separation of the two businesses will enhance their competitive positions and create significant value creation opportunities, including: (1) Enhanced strategic and operational focus: each company will leverage its areas of strength and differentiation to address distinct market trends and opportunities; (2) Simplification of organizational structure and resources: each company will be able to adapt faster to clients’ changing needs, address specific market dynamics, target innovation and investments in select growth areas and accelerate decision making processes; (3) Distinct and clear financial profiles: the separation will enable each company to leverage its distinct growth profile and cash flow characteristics to optimize its capital structure and capital allocation strategy; and (4) Compelling equity investment cases: as standalone companies, both companies will offer distinct and compelling investment propositions with differentiated financial profiles, growth drivers and business prospects.
“Xerox is taking further affirmative steps to drive shareholder value by announcing it will separate into two strong, independent, publicly traded companies,” said Ursula Burns, chairman and chief executive officer of Xerox. “These two companies will be well positioned to lead in their respective rapidly evolving markets and capitalize on the opportunities that now exist to expand margins and increase market share.”
“I am confident that the extensive structural review we conducted over the last few months has produced the right path forward for our company. We will now position the companies for success and execute our plan to separate them in the shortest possible timeframe while continuing to focus on achieving our 2016 goals,” added Burns.
Xerox also announced a three year strategic transformation program targeting a cumulative $2.4 billion savings across all segments. The program is inclusive of ongoing activities and $600 million of incremental transformation initiatives. The company expects $700 million in annualized savings in 2016.
“A core tenet of the strategic transformation we are embarking on today is changing and improving the way we operationalize our businesses. We have identified a plan to deliver cumulative reductions of $2.4 billion over the next three years as part of this process. I have instructed our teams to begin work immediately to deliver the efficiencies needed to achieve our goal,” Burns added.
Xerox will begin the process to separate into the two companies while it finalizes the transaction structure. Xerox’s objective is to complete the separation by year-end, subject to customary conditions, receipt of regulatory approvals, tax considerations, securing any necessary financing and final approval of the Xerox Board.
The transaction is intended to be tax-free to Xerox shareholders for federal income tax purposes.
Until the separation is complete, Xerox will continue to operate as a single company and it will continue to be business as usual for our customers and employees.