Xerox buys ACS for $6.4 billion

The acquisition of Affiliated Computer Services transforms Xerox into a services company that can focus on business process management and outsourcing.

This was originally posted at ZDNet's Between the Lines.

Xerox said Monday it will buy Affiliated Computer Services in a cash and stock deal valued at $6.4 billion.

Xerox is valuing ACS at $63.11 a share, up from ACS' closing price of $47.50. The move transforms Xerox into a services company that can focus on business process management and outsourcing (statement).

The company, which is in a dogfight with Hewlett-Packard for print managed services, is apparently looking for more foot soldiers to cross sell everything from process overhauls to document management programs. After all, HP can use its EDS army to sell print managed services in addition to other items. ACS had $1 billion in recurring revenue during fiscal 2009.

For Ursula Burns, Xerox's CEO , the ACS deal is a defining moment that comes early in her tenure. In a statement, she said:

By combining Xerox's strengths in document technology with ACS's expertise in managing and automating work processes, we're creating a new class of solution provider.

Indeed, Xerox will have a $22 billion company with $17 billion in recurring revenue. When you combine the Xerox deal with Dell's purchase of Perot Systems last week you arrive at an easy conclusion: Everyone wants to be a services company.

ACS shareholders get $18.60 in cash and 4.935 Xerox shares for each share they own. Xerox picks up ACS' $2 billion debt. As for the synergies, Xerox said the deal is about growth:

Xerox is confident it will achieve significant incremental revenue growth by leveraging Xerox's strong global brand and established client relationships to scale ACS's business in Europe, Asia and South America. In addition, Xerox will integrate its intellectual property with ACS's services to create new solutions for end-to-end support of customers' work processes.

However, there will be some savings. Xerox said it will save $300 million to $400 million annually in the first three years once the deal closes. The savings are related to back office, procurement, and the costs related to running a public company.

The deal has been approved by the boards of Xerox and ACS and by an ACS special committee. It is expected to close in the first quarter of 2010.

About the author

    Larry Dignan is editor in chief of ZDNet and editorial director of CNET's TechRepublic. He has covered the technology and financial-services industries since 1995.

     

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