Lexmark is expected to be acquired by printing giant Xerox. Specifically, according to a related announcement, Xerox Holdings Corporation (NASDAQ: XRX) announced that it has agreed to acquire Lexmark International, Inc., from Ninestar Corporation, PAG Asia Capital and Shanghai Shouda Investment Center in a deal valued at $1.5 billion, including commitments.
This acquisition will strengthen Xerox’s core printing portfolio, creating a larger global print and managed print services organization that will better meet customers’ evolving needs in relation to hybrid work.
Lexmark, headquartered in Lexington, Kentucky, is a key Xerox partner and supplier and a leader in innovative imaging solutions and technologies, including a best-in-class line of printers and MFPs. Combining Lexmark’s solutions with Xerox® ConnectKey® technology and advanced print and digital services, the acquisition will create a strong portfolio of offerings and underscore Xerox’s commitment to creating value for customers and partners.
Acquisition Performance
The acquisition will also strengthen Xerox’s ability to support customers in the large, growing A4 color market and diversify its distribution and geographic footprint, including the APAC region. The new organization will serve more than 200,000 customers in 170 countries with 125 manufacturing and distribution facilities in 16 countries. Combined, Lexmark and Xerox are in the top five in market share in the entry-level, mid-range, and production printing solutions markets, and are also key players in the large, stable managed print services market.
The rationale for the deal
- Strategic fit: Xerox and Lexmark have complementary feature sets, offering advantages and approaches to the end market. Combined, the companies form a vertically integrated manufacturer, distributor and provider of printing equipment and MPS, covering all geographies and customer types with a comprehensive portfolio of printing products and services.
- Growth opportunities: Lexmark is a leader in the large, growing market for A4 color printing and supplies and has the opportunity to expand its OEM platform into the A3 equipment category. In the combined organization, Xerox expects to have a more comprehensive product portfolio to enhance its offerings and enhance customer value, with growth across its equipment and MPS portfolio, as well as added opportunities in Digital Services and IT.
- Financial Benefits: The transaction is expected to be immediately accretive to earnings per share and free cash flow. Xerox expects this transaction to accelerate the Reinvention financial goals of stabilizing its revenue and achieving double-digit adjusted operating income through improved competitiveness and entry into faster-growing segments of the printing industry. More than $200 million in recognized synergies is also expected within two years of the transaction.
- Improved Balance Sheet: The transaction will immediately reduce Xerox’s pro forma gross debt leverage ratio from 6.0x as of September 30, 2024, to approximately 5.4x before synergies. Pro forma gross debt leverage will be reduced to 4.4x with the benefit of $200 million in cost synergies. With improved free cash flow and a focus on debt repayment, Xerox expects to reduce its gross debt leverage ratio to below 3.0x over the medium term.
Transaction Details
Under the terms of the agreement, Xerox will acquire Lexmark for a total consideration of $1.5 billion, including net debt and other commitments. Xerox expects to finance the acquisition with a combination of cash and committed debt financing.
In conjunction with this financing, the Xerox Board of Directors has approved a change in dividend policy to reduce Xerox’s annual dividend from $1 per share to 50 cents per share beginning with the dividend expected to be declared in the first quarter of 2025. This reduced dividend provides additional debt reduction capacity while continuing to reward shareholders with a superior return.
The Xerox Board of Directors unanimously approved the deal. The deal is subject to regulatory approvals, Ninestar shareholder approval and other customary closing conditions. It is expected to close in the second half of 2025. Until then, both Xerox and Lexmark will maintain their current businesses and operate independently.
The Next Day
Certain statements contained in this announcement may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially.
Statements in this announcement regarding Xerox and Lexmark that are forward-looking may relate to:
(i) the transaction;
(ii) the expected timing of the closing of the transaction;
(iii) considerations taken into account in approving and consummating the transaction;
(iv) the expected benefits or effects of the transaction on the businesses of Xerox and Lexmark; and
(v) expectations for Xerox and Lexmark following the closing of the transaction.
There can be no assurance that the transaction will be completed.
Risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, other than those identified above, include:
(i) the possibility that the conditions to the closing of the transaction will not be satisfied, including the risk that the required shareholder and regulatory approvals will not be obtained on a timely basis or at all
(ii) the occurrence of any event, change or other circumstance that could give rise to a right to terminate the transaction, including circumstances requiring Xerox or Lexmark to reimburse the other for expenses or to pay a termination fee
(iii) potential transaction-related disruption to Xerox and Lexmark’s current plans, operations and business relationships, including due to loss of customers and employees
(iv) the amount of costs, fees, expenses and other charges incurred by Xerox and Lexmark related to the transaction
(v) the risk that Xerox’s stock price may fluctuate during the pendency of the transaction and decline if the transaction is not completed
(vi) the diversion of Xerox and Lexmark management’s time and attention from current business activities and opportunities
(vii) the response of competitors and other market participants to the transaction; (viii) potential litigation related to the transaction
(ix) uncertainty as to the timing of the transaction and the ability of each party to complete the transaction
(x) Xerox’s ability to finance the transaction
(xi) the ability of the combined company to achieve potential market share expansion; (xii) the ability of the combined company to achieve the identified synergies
(xiii) Xerox’s debt, including debt that Xerox expects to assume and/or undertake in connection with the transaction and the need to generate sufficient cash flows to service and repay such debt
(xiv) the ability to integrate the Lexmark business into Xerox and realize the anticipated strategic benefits of the transaction within the anticipated time frames or at all
(xv) that such integration may be more difficult, time-consuming or costly than anticipated
(xvi) that operating costs, customer losses and business interruption (including, without limitation, difficulties in maintaining relationships with employees, customers or suppliers) may be greater than anticipated following the transaction
xvii) the actions of rating agencies and Xerox’s ability to access short-term and long-term debt markets on a timely and affordable basis
(xviii) general economic conditions that are less favorable than anticipated; and
(xix) other risks and uncertainties described in Xerox’s periodic reports filed with the Securities and Exchange Commission, including Xerox’s Annual Report on Form 10-K.
All forward-looking statements in this release are based on information available to Xerox as of the date of this release and Xerox intends these forward-looking statements to speak only as of the date of this release and does not undertake to update or revise them as more information becomes available, except as required by law.
