OR Xerox Holdings Corporation (NASDAQ: XRX) announced that it has agreed to the acquisition of Lexmark International, Inc., by Ninestar Corporation, PAG Asia Capital and Shanghai Shouda Investment Center in a deal valued at $1.5 billion, including assumed liabilities.

This acquisition will strengthen Xerox’s core print portfolio, creating a larger global print and managed print services organization that will better meet customers’ evolving needs for hybrid work, the release said.

“Xerox’s acquisition of Lexmark brings together two industry leaders with shared values, interlocking strengths and a deep commitment to upgrading the printing industry to create a stronger organization,” stated the Steve BandrowczakCEO of Xerox.

“By combining our capabilities, we will be more effective in driving long-term profitable growth and
serve our customers, promoting the Reinvention plan”, he noted.

Lexmark, based in Lexington, Kentucky, is a major Xerox partner and supplier and a leader in innovative imaging solutions and technologies, including a best-in-class line of printers and MFPs. Combining Lexmark’s solutions with Xerox® ConnectKey® technology and advanced print and digital services, the acquisition will create a strong portfolio of offerings and underscore Xerox’s commitment to creating value for customers and partners.

The acquisition will also strengthen Xerox’s ability to support customers in the large, growing A4 color market and diversify its distribution and geographic presence to include the APAC region. The new organization will serve more than 200,000 customers in 170 countries with 125 manufacturing and distribution facilities in 16 countries. Combined, Lexmark and Xerox are in the top five in share of the entry, mid-range and production solutions markets, and are also key players in the large, stable managed print services market.

“At Lexmark we are proud of our history of serving our customers with world-class technology, solutions and service. We are excited to join Xerox and strengthen our capabilities with shared talent and a stronger product portfolio.” stated the Allen WaugermanPresident and CEO of Lexmark. “Lexmark and Xerox are two great companies that will be even greater together.”

“Our shared values ​​and vision are expected to streamline operations and increase efficiency, leveraging the best of both companies to facilitate our business with Xerox”Bandrowczak added.

The rationale of the agreement

  • Strategic implementation: Xerox and Lexmark have complementary feature sets, offering advantages and approaches to the end market. Combined the companies are a vertical manufacturer, distributor and provider of printing equipment and MPS, covering all geographies and customer types with a comprehensive portfolio of printing products and services.
  • Growth opportunities: Lexmark is a leader in the large, growing A4 color printing and consumables market and has an opportunity to expand its OEM platform into the A3 equipment class. In the combined organization, Xerox expects to have a more integrated product portfolio to enhance its offerings and enhance added value for customers, with growth across the equipment and MPS portfolio, as well as added opportunities in the areas of Digital Services and IT.
  • Financial benefits: The deal is expected to be immediately accretive to earnings per share and free cash flow. Xerox expects this transaction to accelerate the realization of the financial objectives of the Reinvention plan to stabilize its revenue and to a double-digit adjusted operating income, through improved competitiveness and activity in the fastest growing segments of the printing industry. More than $200 million in recognized synergies is also expected over the two-year horizon of the deal.
  • Improved balance sheet: The transaction will immediately reduce Xerox’s pro forma gross debt leverage ratio, from 6.0x at September 30, 2024, to approximately 5.4x before synergies. Pro forma gross debt leverage will decrease to 4.4x with the benefit of $200 million in cost synergies.

With improved free cash flow and prioritization of debt repayment, Xerox expects to reduce its gross debt leverage ratio below 3.0x over the medium term.

The details of the transaction

Under the terms of the deal, Xerox will acquire Lexmark for a total consideration 1.5 billion dollarsincluding net debt and other assumed liabilities. Xerox expects to finance the acquisition with
combination of cash and committed debt financing.

In conjunction with this financing, Xerox’s Board of Directors approved a change in dividend policy to reduce Xerox’s annual dividend from $1 per share to 50 cents per share beginning with a dividend expected to be declared in the first quarter of 2025. this reduced dividend provides additional leverage to reduce debt while continuing to reward shareholders with above-market performance.

Xerox’s Board of Directors unanimously approved the deal. The deal is subject to regulatory approvals, Ninestar shareholder approval and other customary closing conditions. It is expected to close in the second half of 2025. Until then, both Xerox and Lexmark will maintain their current businesses and operate independently.