Tuesday, October 6, 2009

This Week in Xerox "TWIX Notes"

Gathered from Print4Pay Hotel Members from around the world and a few moles in very good places!

Xerox announced that its desktop DocuMate scanners (which are actually made by JFL Peripheral Solutions/Visioneer), now have a driver to work with Linux operating systems based computer. The driver is called SANE (stands for Scanner Access Now Easy).

Competing against Xerox where a customer wants to use tabs in a production print environment? Xerox’s Freeflow system apparently has the following disadvantages:
- all text on tabs must be manually created
- no way to insert or remove a tab without completely resetting all subsequent tabs
- no way to preview all tabs
- now way to print just tabs
- no linewrap or image support
- font can not be changed after creation

Xerox announced new partnership with OpenText, makers of Captaris RightFax, to offer the document management software solutions. OpenText currently supports 20,000 active fax servers.

Xerox makes big news when it announced it acquired Affiliated Computer Services Inc. (ACS). Details:
- Total purchase price of $6.4 billion (Xerox’s largest acquisition ever)
- Purchase price made up of Xerox buying each ACS share for $18.60 in cash and 4.935 Xerox shares, for an approximate total of $63.11 per ACS share, or 34% more than ACS’s stock was trading for
- Xerox also is now responsible for $2 billion in ACS debt
- According to InfoTrends; “Xerox will not likely be able to make any other large investments in the near to mid-term. Xerox may have to limit its investments in R&D. In many respects,
Xerox can’t afford to fail.”
- Xerox’s total annual service revenue will now be $10 billion per year
(compared to last year’s $3.5 billion, of which only $300 million was on process outsourcing)
- Xerox’s total revenue overall will be $22 billion per year worldwide
- It hopes for cost savings of $400 million 3 years after the purchase.
- Will be run as a separate division, with former ACS CEO, Mr. Lynn Blodgett, reporting to Xerox’s CEO, Ms. Ursula Burns. It will be called “ACS, a Xerox company”
- Lynn Blodgett & brother Jim formed Unibase Technology of Sandy, UT in 1985
- Unibase sold out to ACS in 1996
- ACS was founded 21 years ago (1998) by Darwin Deason to serve banking industry.
- ACS is based in Dallas, Texas and was ranked 401 on the Fortune 500 list
- ACS ranked 22nd on Fortune’s top performing stocks
- ACS has 74,000 employees with 500 locations in 100 countries.
(28,324 in the U.S. and 31,035 offshore)
- In contrast, Xerox has 54,000 employees worldwide. (does not include employees of Fuji of Japan which makes most Xerox branded equipment)
- ACS has 14 data centers total located in Dallas (TX), Bangalore (India) and Monterrey (Mexico)
- ACS provides technology used to run the E-ZPass electronic toll system in the U.S.
- In December of 2008, ACS was found by a Dallas judge to be illegally operating automated traffic ticketing machines without a proper license
- In March 2007, ACS was accused of vandalizing traffic speed cameras in Washington DC after it lost the contract to a competitor
- In 2006, ACS faced bribery charges in Canada, after police officers accepted lavish gifts from the company, including travel, sports tickets and female escort services – in return to a recommendation that ACS be given a no bid, $90 million photo ticketing contract.
- ACS also manages administrative operations for multiple arms of the U.S. government
- 40% of ACS’s revenue comes from government contracts
- 90% of ACS’s new contracts last year were business process outsourcing from other firms
- Xerox estimates that the business process outsourcing market is $150 billion per year.
- ACS is the largest provider of managed services to governments in the U.S.
with more than 1700 customers.
- 25% of ACS’s revenue comes from healthcare industry (primarily Medicaid contracts for 15 states) which it expects to grow as the government pushes electronic medical records (EMR) systems
- Deadline from federal government for EMR is 2015.
- 92% of ACS’s revenue is from U.S.
- ACS is also the U.S.’s large student loan processor
- ACS’s total revenue last year was $6.5 billion, a 5.9% increase over previous year
- In contrast, Xerox posted declines for last 4 quarters
- ACS’s profit last year was $350 million
- ACS has made nearly 100 acquisitions over last 20 years.
- ACS’s stock was originally trading at $47.25 per share, while Xerox’s was $8.23 per share
- Before acquisition, Xerox had $1.22 billion in cash and $6.7 billion in debt
- ACS has 80% of revenue in business process outsourcing and 20% on information technology outsourcing
- Sales of IT services in U.S. grew 8.2% in 2008 to $806 billion according to Gartner.
- Xerox felt pressure after Hewlett Packard had bought Electronic Data Systems (EDS for $13.2 billion) and Dell Computer had purchased Perot Systems (for $3.9 billion).
- When asked why Xerox bought ACS, Ursula Burns said; “Customers are saying – We need help with the entire document infrastructure. We’ve got the technology piece of the back office and the technology piece of automation. We need help with the information piece. By combining Xerox’s strengths in document technology with ACS’s expertise in managing and automating work processes, we’re creating a new class of solution provider. A game-changer for Xerox, acquiring ACS helps us expand our business and benefit from stronger revenue and earnings growth.
The way we were going was going to take 10 years (to transform from a product company into a service provider). The path we were on wouldn’t have given us the scale fast enough.”
- Lynn Blodgett said; “ACS continues focusing on our core capabilities, including transactional business processing, customer care, information technology and human resources. These capabilities touch millions of lives every day through governments and commercial enterprises around the world. We are committed to providing significant value for both our clients and stockholders. We also know that for ACS to expand globally and differentiate our offerings through technology, we need a partner with tremendous brand strength and leading innovation. Xerox offers that and more to bring our business to the next level while strengthening theirs.”
- Xerox claims that it previously shared only 20% of its customers with ACS.
- Xerox claims that ACS is primarily a U.S. based company, and most of growth for ACS will come from Europe, Asia and South America.
- The two main competitors to ACS in this market left are Accenture Ltd. and Computer Sciences Corp.
(are they up for grabs as well?) Others in this market space are IBM Global Services, HP Enterprise Services, Deloitte, Unisys, Sourcecorp & Hewitt Associates.
- Computer Sciences Corp. is the manager of networks for NASA and the U.S. Navy, and is based in Falls Church, VA. 35% of its revenue is from government contracts.
- Accenture has a market value of $27.8 billion with 180,000 employees
- Hewitt Associates, based in Lincolnshire, IL, is worth $3.38 billion
- Other smaller firms are Cognizant Technology Solutions Corp, CGI Group Inc.
and Sapient Corp.
- Other firms looking at acquiring services companies are Cisco Corp and Oracle Corp.
- Oracle is currently closing a $7.4 billion deal for Sun Microsystems Inc.
- Standard & Poor’s will cut Xerox’s corporate credit rating to BBB-.
- ACS tried to sell itself 2 years ago to private equity firm Cerberus Capital Management
- 5 months ago ACS took over computer operations of Novell Inc. of Provo, UT.

What do other think about this acquisition? Here are comments from the Gerson Lehman Group, financial advisors in Business Week magazine:
“will end up further de-focusing the company’s core business as well as the weakening of ACS’s competitiveness in the marketplace”
- “Xerox’s big bet on services with the ACS acquisition is not likely to be successful”
- “Xerox has failed miserable in financial services sector by acquiring several large financial services firms in the early 1980s (Van Kemp Merrit…….and others costing many billions around 1983)”
- “mixing ACS with Xerox’s main line business is like mixing oil & water”
- “will result in ACS losing market competitiveness and market share as well as decline
in its gross margin”

Less than 48 hours after the Xerox/ACS announced, some shareholders filed a lawsuit to stop it in the Delaware Court of Chancery.
- Contends that officers and directors of ACS breached their duty of loyalty
- Claim that executives of ACS were conflicted because of approximately $16 million to be paid to them
- Former founder Darwin Deason supposedly receive an extra $300 million in Xerox stock

-=Good Selling=-

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