The IT Nerd

Over the holidays, Xerox agreed to buy Lexmark from its current owners for $1.5 billion. Here’s why: 

• Strategic fit: Xerox and Lexmark have complementary sets of operations, offering strengths and end-market exposures. Combined, the companies form a vertically integrated manufacturer, distributor and provider of print equipment and MPS, covering all geographies and client types with a well-rounded portfolio of print and print services offerings. 

• Growth opportunities: Lexmark is a leader in the large, growing A4 color print and supplies market and has an opportunity to expand its OEM platform within the A3equipment category. Once combined, Xerox expects to have a more comprehensive portfolio of products to enhance its offerings and reinforce its value proposition to clients, enabling growth across the portfolio of equipment and MPS, as well as incremental opportunities to increase penetration of its advanced Digital Services and IT Solutions. 

• Financial benefits: The transaction is expected to be immediately accretive to earnings per share and free cash flow. Xerox expects this transaction to accelerate the realization of its Reinvention financial targets of revenue stabilization and double-digit adjusted operating income through an improved competitive position and exposure to faster-growing segments within print, as well as more than $200 million of identifiedcost synergies to be realized within two years of transaction close.  

• Improved balance sheet: The transaction will immediately reduce Xerox pro forma gross debt leverage ratio, from 6.0x as of Sept. 30, 2024, to approximately 5.4x before synergies. Pro forma gross debt leverage will be reduced to approximately 4.4x with the benefit of $200 million of cost synergies. With improved free cash flow and a priority of repaying debt, Xerox expects to reduce its gross debt leverage ratio to below 3.0x over the medium term. 

There’s a catch though. Bloomberg says that American and Chinese regulators must approve the purchase as Lexmark is currently owned by a Chinese company. Given the political tensions that are sure to appear the nanosecond that Donald Trump becomes president of the US, that may not happen. But I am free to be surprised. This will be something to watch in 2025 as these are two iconic brands that have agreed to merge. And the world will be watching to see how this goes.