Former Chinese Foe And Enemy Acquires USA's Lexmark Corp

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Former Chinese Foe And Enemy Acquires USA's  Lexmark Corp  
PAG Capital, Legend team with Apex in agreed printer takeover
Chinese company has faced suits from slew of printer rivals
By Selina Wang

The Chinese company leading a deal to buy Lexmark International Inc. should be very familiar with its conquest: they have previously squared off in a courtroom over intellectual property.

An affiliate of Apex Technology Co. was forced to stop selling a range of products after Lexmark sued in 2010, alleging it infringed at least 15 patents. Now the Chinese company, along with PAG Asia Capital and Legend Capital Management Co., has struck a $3.6 billion deal to acquire its onetime legal foe.

Acquiring Lexmark could significantly bolster Apex’s access to intellectual property. The maker of printer cartridges has a history of legal battles, including lawsuits against Canon Inc., Seiko Epson Corp. and Hewlett-Packard Co. Lexmark held almost 4,000 approved and pending patents in 2013 and was once part of International Business Machines Corp., long the leader in U.S. patent applications.

“In this business, they have to face all the dinosaurs that have lots of patents. They either develop their own technology or buy technology,” said Benjamin Bai, partner and head of the China IP practice for Allen & Overy in Shanghai. “Lexmark has quite a bit of intellectual property on the patent side.” Apex declined to comment pending its own filing to the Shenzhen stock exchange.

Razor-Blade Model
Lexmark has been fierce in protecting its IP, especially over toner refills such as those that underpin Apex’s business. Printer makers often sell their hardware for close to cost and count on sales of ink and cartridges to generate ongoing revenue. Each producer typically has a different shape for toner refills, which are also electronically coded to work with the printer, to lock in users.

Lexmark’s dispute with Apex includes a patent-infringement claim filed with U.S. trade officials in 2010, citing companies including Apex affiliate Ninestar, as it sought to block what it called copycat cartridges.

The Chinese company, along with Zhuhai Seine Technology Co., was also sued by Canon the same year. Zhuhai Seine owns about 70 percent of Apex’s voting shares, while the China Integrated Circuit is the third largest shareholder, according to data compiled by Bloomberg.

Legal Deals
Both the Lexmark and Canon cases were later settled when the defendants agreed to stop selling the cartridges. Seiko Epson won a U.S. International Trade Commission ruling in 2007 while a dispute with HP was settled last year, according to the Ninestar website.

Lexmark’s success at protecting its IP even extends to products that are sold overseas first. In February, the U.S. Court of Appeals for the Federal Circuit in Washington backed the company’s argument that it should be able to prevent such goods from being refurbished and and resold in the U.S.

Apex’s bidding group is offering $40.50 per Lexmark share, a 17 percent premium to Tuesday’s closing price. The deal is expected to close in the second half and is subject to certain shareholder and regulatory approvals.

Partnering with PAG, a buyout firm, and Legend is helping Apex gain control of a target that generates 10 times its own sales. Lexmark generated revenue of $3.6 billion last year compared with less than $350 million for Apex, according to data compiled by Bloomberg.

China Plan
The deal brings businesses together in a region where paper and fax machines are still common, while the U.S. and Europe are ditching printed material in favor of paperless transactions and digital signatures.

Synergies between the companies are strong and almost perfectly complementary, Weijian Shan, chief executive officer of PAG, wrote in an e-mail.The acquisition "allows Lexmark to offer a full range of products and solutions to its customer and it also opens the entire China market for Lexmark where it to date has a very small market share," Shan said.
http://www.bloomberg.com/news/articles/2016-04-20/apex-changes-from-foe-to-suitor-with-3-6-billion-lexmark-deal

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April 20, 2016 at 11:06 AM