Just a week after Dell announced it is to acquire Perot Systems, printer and copy machine maker Xerox Corp said today it would pay $6.4 billion in cash and stock for its near neighbour and another big name services company, Dallas-based business process outsourcer Affiliated Computer Systems.
The reason for making the acquisition according to the company is that ‘Xerox becomes a $22 billion global company, of which $17 billion is recurring revenue – a significant boost to our profitable annuity stream.”
CEO Ursula Burns called the deal ‘a game-changer’ for the company, albeit one that values ACS at a 34% or $2 billion premium to its current value.
Xerox expects to achieve annualised cost synergies that will increase to the range of $300 million to $400 million in the first three years following the close of the transaction.
The deal will increases service revenue at Xerox three-fold to an estimated $10 billion next year from last year’s $3.5 billion.
Under the terms of the agreement, ACS shareholders will receive a total of $18.60 per share in cash plus 4.935 Xerox shares for each ACS share they own. In addition, Xerox will assume $2 billion of ACS debt.
ACS is described as a $6.5 billion company with revenue growth of 6% and new business signings of $1 billion in annual recurring revenue during its fiscal 2009. It specialises in managing paper-based work processes and in providing BPO and IT services for industries that range from telecommunications, retail and financial services to healthcare, education and transportation. It has 74,000 employees.
The transaction, which has been approved by the Xerox and ACS boards of directors and ACS special committee, is expected to close in the first quarter of 2010.
