Zinger Key Points
- Xerox to acquire Lexmark for $1.5B, enhancing its print portfolio and expanding global services, with a focus on APAC.
- The deal will lower Xerox's debt leverage and is expected to be accretive to EPS and cash flow, with a reduced dividend.
Xerox Holdings Corporation XRX shares are trading higher after the company disclosed a deal to acquire Lexmark International, Inc. from Ninestar Corporation, PAG Asia Capital, and Shanghai Shouda Investment Centre for $1.5 billion, including assumed liabilities.
This acquisition will enhance Xerox's core print portfolio and expand its global print and managed print services business.
The acquisition of Lexmark will integrate its solutions with Xerox ConnectKey technology and advanced Print and Digital Services, enhancing Xerox's offering portfolio and reinforcing its commitment to adding value for clients and partners.
It will also boost Xerox's ability to serve clients in the expanding A4 color market while diversifying its distribution and geographic footprint, particularly in the APAC region.
Benefits & Synergies: The combined entity will serve over 200,000 clients across 170 countries, with 125 manufacturing and distribution facilities in 16 countries.
The transaction will immediately lower Xerox's pro forma gross debt leverage ratio from 6.0x as of September 30, 2024, to around 5.4x before synergies.
After realizing $200 million in cost synergies, the ratio is expected to drop to approximately 4.4x. Xerox aims to reduce its gross debt leverage ratio to below 3.0x in the medium term.
The transaction is expected to be immediately accretive to both earnings per share and free cash flow.
Dividend Cut: Xerox's Board of Directors approved a reduction in the annual dividend from $1 per share to 50 cents per share, starting with the dividend expected in the first quarter of 2025.
The company said this decrease in the dividend will free up additional funds for debt reduction while offering shareholders an above-market yield.
The Xerox Board has unanimously approved the transaction, which is subject to regulatory approvals, Ninestar's shareholder approval, and other customary closing conditions.
The deal is expected to close in the second half of 2025, with both Xerox and Lexmark continuing their operations independently until then.
Xerox held $521 million in cash and equivalents as of September 30, 2024.
Price Action: XRX shares are up 7.27% at $9.01 at the last check on Monday.
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