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Will 2018 see the long-expected industry consolidation gather pace? Part 3

It’s time to take some time to analyse what is happening

 

There is practical business logic with the following elements:
  • Faster time to market because of the merger of worldwide R&D, logistics, launch and manufacturing processes.
  • One R&D department with a higher budget for new innovations
  • Economy of scale thanks to 18 $ billion revenue (Costs savings, competitiveness, the new combination jumps from #5 into the top 3 Vendors in the market)
  • Fuji Xerox has products in their portfolio Xerox never launched.

 

But to succeed, it will be a complicated execution, as it will take time for all these changes to be implemented correctly. One of the major “savings” announced is the disappearance of 10,000 jobs. Interestingly most of them seem to come from old Fuji Xerox in areas like HQs, Manufacturing and Marketing. So no “new” savings! Similarly Xerox had announced already an important cost reduction plan last year, so do the figures add or are they the same. It is difficult to decipher and analysts struggle to understand how that works. Symbolic but interesting is that the current Xerox CEO, Jeff Jacobson, will retain his job despite the call earlier this month by Xerox’s two major stockholders to have Jacobson removed.

 

Some indications can be found in Fujifilm announcements with a strong focus on better Global Account Management (we felt they were doing that already so was something broken?), a strong focus on Production Print with Office Print being seen as a less attractive opportunity, and a mixed message on R&D (on one hand investment but on the other hand closing some facilities).

 

Additionally some clever financial practice makes the company cheap to buy and almost everybody happy.  Xerox was valued at US$8 billion at the time of the announcement. Fujifilm announced that they paid $6.1 billion for the company. This is an apparent $1.9 Bn tax-free gain in the books for Fuji – especially since there was no cash out as Fuji will be using “unrealized profit” from its Fuji Xerox interest to make the purchase. The difference goes to the current US shareholders, especially the activists (15% holdings), who exit with a nice bonus (2B$ dividend) and transfer the complexity and above all the time span of execution onto other shoulders.

So net net nobody has put a dollar into Xerox and the current shareholders run away with a part of the treasure chest (in real dollars this one) whilst retaining their shares in both Fuji Xerox and Conduent, the former services arm separated a year ago. According to the latest developments, these activists are not sure about the value of their holdings in the new Fuji Xerox and request a different execution to maximize the value of their holdings.

 

On a strategic level, it is difficult to estimate what the new Fuji Xerox will do with some of their subsidiaries, more specifically their software assets and PARC.

Will they follow the HP route, which focuses on hardware, technology and great execution; this strategy is pretty successful currently with market shares up and competitors struggling.

Or will they try, like some Japanese competitors, climbing up the value chain into Documents and Software. Remember Lexmark failed at that game.

Is it a difference between US and Japanese management and shareholders expectations?

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This article was written on 27 Mar 2018, and is filled under Business Forecast, Point of View.

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