Did you ever go to business school?

The standard method business schools employ to educate their students is the study of business cases- decisions, actions, and results from real life situations.  Sometimes, these programs assign students to work with companies, struggling with their day-to-day events, on a contemporary basis.

 

So, let’s take a business course-  let’s see what we can learn from a real life situation.

For some 55+ years, Xerox and Fuji maintained a joint venture to sell copiers and printers in Asia.  Back in 1962, Xerox was the big dog in the kennel, and Fuji wanted to control the Asian market.  Over the years, that joint venture grew to generate annual revenue of more than $ 9 billion.  Not exactly chicken feed.  (The venture accounts for 50% of Fujifilm’s revenue; Xerox no longer makes any copiers- they rely on the joint venture for their needs.)

And, that deal was expected to lead to a merger between Xerox and Fuji.  (Actually, Xerox would have been subsumed by Fuji Xerox, with Fuji trading its 75% stake in the joint venture for 50.1% of Xerox.  And, Xerox’ stockholders would be paid a special dividend of $ 2.5 billion.)  But, that merger is never going to happen.    Because Carl Icahn objected, with some help from another corporate raider, Darwin Deason.  Icahn has owned more than 10% of Xerox since 2015 and Deason owns about 5%.  The basis for their objection was that Xerox’ then-CEO, Jeff Jacobson, had arranged the deal to save his job.  Yes, Jacobson knew the raiders had every intention of axing him.     (John Visentin, who is a long-time operator in Icahn’s circle, has since been appointed CEO of Xerox.)

Wait- just a little more background.

Xerox is terminating its arrangement with Fuji (both in Fuji Xerox and another joint venture), turning over it’s 25% stake in their joint venture.  Fuji has agreed to continue to supply Xerox with office copiers and will also terminate its lawsuit against Xerox for squashing the merger.  Oh, yeah- Xerox will walk away with some $ 2.3 billion in the process.

I’m guessing that cash is burning a hole in Icahn’s pocket.  Because it took only one day for Xerox’ reorganization plans (as vociferated by Visentin et al) to change.

Visentin decided that an unsolicited offer for HP (the printer group, not the enterprise group) makes a lot of sense.  The offer is a combination of cash and stock. (CitiBank is helping Xerox with its $ 23 a share offer [$35 billion total], adding to the $2.3 billion in “free” cash that Xerox will have.)  But, acquiring HP is still a big leap- because HP is thrice the size of Xerox.  Normally, mergers of this sort [where the acquirer is the minnow seeking to take over a shark] never reach ignition- but Icahn has managed to pull some of these off.

(HP has been reorganizing itself since its fissure from Hewlett Packard Company [Hewlett Packard Enterprise Company was also formed at the same time to sell servers and “big iron” to corporate customers].  Dion Weisler, who was the CEO doing the reorganization recently left for family health reasons, leaving long-time employee Enrique Lores in charge.  HP plans to dump 9000 folks (16% of its staffing), saving $1 billion in costs by next year’s end. Part of HP’s problem is that, historically, it sold printers for cheap, making money from the toner and ink cartridges.  [It even developed patented techniques to ensure one bought only HP materials.  A la “razor blade’ business model.  The Supreme Court rules that this is not permissible; customers can buy any replacement toner or ink they desire. So much for that “razor blade” business model.]

Xerox, as stated above, has been outsourcing its office copier and printer business to Fuji Xerox.  And, it’s never yet ventured into one of the hottest new printing markets- additive manufacturing (aka, 3D printing).  And, from the outside, the world considers HP the printer king and Xerox the copier king, which makes the merger look plausible.  But,that’s only surface deep.  Because Xerox outsources the production of many of its copiers.  And, both the printer and copier markets are shrinking, unlikely to exhibit big growth in the future- with the exception of 3D printing.

I know that there are economies of scale.  Xerox could once again be supplying its own copiers and printers.  (To be honest, they don’t sell many printers.)  And, HP recently subsumed the printer business of Samsung, which elevated HP’s share of the printer market.  It owns some 46% of the color inkjet portion (up from last year) and about 50% of the laser printing market.  But, again, the printer market business has been declining- which is why Samsung was willing to let its profitable printer business go.

It’s not clear that HP will accept the offer.  But, it is “entertaining” the thought.

And, now, dear student…

Please explain what you would do?

Xerox Offer

Click on the link above to see the offer letter Xerox Sent to HP