What Happens if the Xerox-Lexmark Merger Gets Blocked?

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What Happens if the Xerox-Lexmark Merger Gets Blocked?
The proposed merger between Xerox and Lexmark is facing significant hurdles. Given the ongoing trade tensions and the precarious financial situation of the companies involved, there’s a possibility that the deal could be derailed. If that happens, the fallout could be swift and brutal for both firms.

Chinese Approval: A Major Wildcard
While the U.S. regulatory approval process is expected to be rigorous, the real threat may come from Chinese authorities. Lexmark, currently owned by a consortium of Chinese investors, represents a strategic asset that Beijing may be reluctant to part with—especially to a U.S. company in questionable financial health.

China has blocked deals before, often citing “national security” concerns or economic risks. This is particularly relevant now, given that any transfer of a Chinese-owned business to an American firm would be under the microscope. Additionally, China’s regulators could take the view that selling Lexmark to Xerox is effectively handing over an asset that might soon be picked apart in a U.S. bankruptcy proceeding. With Xerox already struggling financially, this concern isn’t far-fetched.

Financial Instability: A Looming Disaster?
Even if regulatory approvals are granted, the financial logistics of the deal are another glaring issue. If Xerox’s stock price falls to around $4 per share before the merger is finalized, as some speculate, its total market cap would drop to roughly $500 million.

Here’s the dilemma: Who would lend $1.5 billion to a company that’s already bleeding cash and worth only a third of the amount it’s trying to borrow? Given the economic climate, securing that kind of financing seems improbable. Debt markets are tightening, and lenders are increasingly wary of sinking money into high-risk ventures.

The Bankruptcy Scenario
If the deal collapses, both companies could face severe consequences. Xerox is already in a precarious position, struggling with declining revenues and a rapidly shrinking market for traditional print services. Without a major strategic move like the Lexmark acquisition, its future looks bleak. A blocked merger could accelerate Xerox’s path toward insolvency, leaving it vulnerable to activist investors, asset sales, or a potential Chapter 11 filing.

Lexmark, on the other hand, would remain under its current ownership but might struggle to find another buyer willing to take on its liabilities. Given the potential for U.S.-China tensions to disrupt future deals, it could be stuck in a holding pattern with no clear path forward.

The Bottom Line
This merger isn’t just about two struggling companies trying to survive—it’s a high-stakes gamble that involves international politics, regulatory scrutiny, and financial instability. If the deal gets blocked, the fallout could be severe, sending Xerox into a tailspin and leaving Lexmark in limbo. And if the deal somehow goes through despite all odds, the financial math still doesn’t add up.

[Author]

February 18, 2025 at 2:41 PM