Here’s How a Xerox-Lexmark Buy-Out or Merger, Might or Might Not Go Down?

[jim]

Here’s How a Xerox-Lexmark Buy-Out or Merger, Might or Might Not Go Down?
Last week’s rumor hit the printer industry like a bombshell: Xerox was going to possibly buy out Lexmark by the end of the first quarter of 2024. Xerox and Lexmark had been fierce rivals for decades, competing for market share and innovation in the office equipment sector. How could they suddenly become one? Maybe the answer lay in secret conversations that have been taking place behind closed doors since the ban on Ninestar last June 2023, and since Xerox Financial Services (XFS) had signed Lexmark as its first OEM client, in providing financing for selected Lexmark MPS engagements. Guess it was the beginning of a bromance.

The need to consolidate resources and cut costs in a shrinking and saturated market, the desire to leverage each other’s strengths and technologies, and the ambition to challenge the dominance of HP, Canon, and Epson in the printer industry. Maybe Xerox and Lexmark believed that by joining forces, they could create a more powerful and diversified company that could offer better products and services to their customers.

Let’s look at the financial aspect of this possible deal.
Neither Xerox nor Lexmark currently possess sufficient funds for a buyout. While Xerox could potentially secure financing, this would add an estimated $5 billion to its existing $3 billion debt, making it a financially risky endeavor. Lexmark was acquired by China’s Ninestar for $4.0B in 2016, with backing from a consortium of CCP investors, including PAG Capital Partners. Lexmark’s current market value is estimated to be around $5.07B, although this could fluctuate based on various performance factors such as competition, innovation, and demand. (The estimate is based on the formula: Vt=V0(1+r)t)

Benefits:
Xerox could benefit from Lexmark’s robust A4 products, which have seen growth due to the COVID-19 pandemic and the shift to remote work. Xerox could leverage Lexmark’s expertise in managed print services and print solutions across various sectors, such as healthcare, education, and government. Xerox could expand its market share in China, where Lexmark is owned by Ninestar (for now). Xerox and Lexmark could reduce costs and enhance efficiency by merging their operations, supply chains, and distribution networks. Xerox and Lexmark could bolster their innovation and competitiveness by pooling their research and development resources and intellectual property assets.

Drawbacks:
Xerox may encounter difficulties in financing the deal due to its high debt level and declining revenue and profitability. Xerox may face legal and regulatory hurdles, particularly in the U.S., where Lexmark is considered a national security asset and holds contracts with the federal government. Xerox may meet resistance from its customers, partners, and employees, who may perceive the deal as a sell-out to a Chinese company with ties to the CCP. Xerox and Lexmark may experience conflicts in culture, strategy, and vision, potentially leading to issues and inefficiencies during the integration process. Xerox and Lexmark may lose their market focus and differentiation as they attempt to merge their diverse and complex product portfolios and customer segments.
(Note: These potential pros and cons are purely hypothetical and speculative, and do not reflect the actual intentions or plans of either company.)

Here’s a nice new possible slogan to summed up their new identity: Xerox Lexmark: The Power of Two.
One of the most significant aspects of this deal is that Lexmark would once again become a U.S. company, enabling it to move forward from a challenging dark chapter in its history. It would again be perceived as a trustworthy company, free from CCP influence. Given Xerox’s iconic brand and Lexmark’s potential, this venture might be worth considering. While the deal might be challenging to execute, both Xerox and Lexmark have the potential to innovate and thrive. if Xerox and Lexmark are confident that they could overcome them and create a new printer giant that would reshape the industry with a vision of a future where they could offer more than just printers, but also solutions for data, analytics, and automation. Let’s stay optimistic on how this deal might unfolds and support them as they endeavor to keep print alive and relevant.

 

[Author]

February 19, 2024 at 3:01 PM