Split Decision: Xerox Separates Hardware and Services Businesses


Xerox Split

Xerox has been challenged for several years with a bifurcated brand identity associated both with its old copier business model and its more recent business services strategy. A brand campaign that launched last year aimed to bring B2B customers and consumers alike up-to-date with what Xerox really had become.

Perhaps Xerox’s more significant gap was its business model, not its brand. CEO Ursula Burns sought to make the combination of the two work out, particularly after Xerox bought Affiliated Computer Services, a business outsourcing company, in 2010.

Xerox CEO Ursula Burns

The upshot: today Xerox announced that it is spinning off the services business to its shareholders this year and separating it from the legacy hardware side, creating two distinct and publicly traded companies that are detailed at the Xerox: Path Forward microsite.

One catalyst behind the decision was activist investor Carl Icahn, who amassed an eight percent stake in Xerox late last year and felt its shares were undervalued—but Burns emphasized today that Icahn was not the reason for splitting the company into two publicly traded companies.

“We’re happy that he is in support of it, but he had nothing to do with the initiation, the contemplation, the analysis, or any discussion around the deal,” Burns told CNBC’s Squawk Box. “We are happy that he is in agreement with it, but he did not drive it, as is being reported in the news.”

As part of the corporate uncoupling, Icahn will have three representatives on the board of the services company once it’s spun off. He told CNBC on Thursday that he approved of the split, which he called “a major move” that “will greatly enhance shareholder value” and that he had met with Burns to urge her to pull the lever. Shares of Xerox were down 28 percent from a year earlier.

Specifically, Xerox announced that it would separate into an $11 billion document technology company and a $7 billion business process outsourcing company by the end of this year in order to “maximize return to shareholders and align with current market dynamics.” It’s also looking to cut costs by $2.4 billion over the next three years between both companies.

Xerox Split

As Xerox explained its rationale, “Today’s market realities require greater agility and flexibility, the ability to innovate and adapt technology to address clients’ fast-evolving needs, and a more focused and efficient approach to operations and capital allocation. As a result, it has become increasingly clear that the document technology and [services] businesses serve distinct client needs, have different growth drivers, and require customized operating models and capital structures.

“Thus, the separation of the two businesses will enhance their competitive positions and create significant value creation opportunities.”

Interestingly, customer confusion about exactly what Xerox did was behind the brand’s most significant new marketing campaign in years, which it launched in August. “Work Can Work Better” aimed to help B2B customers realize that Xerox could help them sort through the cacophony of digital technologies and possibilities coming at them from every angle—now the job of the business-outsourcing part of the company.