There are times when a deal makes sense and there are times when a deal doesn’t. This morning’s news that Xerox has pulled out of its $6.1bn deal with Japan’s Fujifilm may have upset the Japanese company but the deal never made a lot of sense in the first place.
The boardroom rows that resulted in today’s change of mind would have made the finalisation of any bidding process difficult in any case. Activist investors Carl Icahn appear to have got their way saying that the deal fundamentally undervalues the Xerox business. Fujifilm’s refusal to improve its bid appears to have been one of the reasons for Xerox pulling out of the deal, along with concerns about accounting standards at Fuji Xerox.
For quite some time now Fujifilm has been diversifying its business into healthcare and cosmetics due to declining sales and revenues in the copier and printer sector. Fujifilm already owns a 75 per cent stake in its joint venture Fuji Xerox, which it has had for the last 50 years.
Under the terms of the now collapsed deal Fuji Xerox would have bought back its stake for $6.1bn using bank debt and then the money would get used to buy 50.1 per cent of new Xerox shares, with Xerox shareholders owning the rest, thus giving Fujifilm a majority stake in a business with direct access to channels in Europe and the US.
If the copying business was a growing business the deal would have made sense but given that sales of copiers and printers are already in decline the deal might make sense for Xerox, it’s a much less attractive proposition for Fujifilm, which is already diversifying in other areas.
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