The company had talks with four leveraged-buyout firms last week, TheStreet.com reported Friday, citing people familiar with the negotiations. Analysts, though, said Xerox is an unlikely acquisition target. Xerox exhausted a US$7 billion line of credit after being shut out of the market for short-term IOUs, and has to repay US$2.7 billion of its US$16.4 billion in net debt this year.
"No one wants to touch someone with US$16 billion in debt," said analyst James Corridore of Standard & Poor's Equity Services, who rates the shares "avoid."
Xerox has said since October it plans to sell US$2 billion to US$4 billion in assets to help repay debt, and has retained Blackstone Group LP for advice on how to better manage its cash. Xerox lost US$384 million on sales of US$18.63 billion last year.
According to TheStreet.com report, Texas Pacific Group; Clayton, Dubilier & Rice Inc; Kohlberg Kravis Roberts & Co; and Silver Lake Partners each sent teams last week to Xerox headquarters in Stamford, Connecticut, for meetings.
"We announced we're aggressively working to sell US$2 to US$4 billion in assets and to do that we're meeting with a wide range of companies," said Bill McKee, Xerox spokesman. "There are meetings every day."
McKee would not confirm if the meetings with the buyout firms were taking place. KKR spokesman Josh Pekarsky and Christopher Tofalli, spokesman for Clayton Dubilier & Rice, declined to comment. A spokesman for TPG was unavailable for comment.
Xerox shares fell US$0.17 to US$8.26 on Friday.
Unit sales
Xerox said in December it's in talks to find investors for its inkjet printing business. The company doesn't disclose the unit's sales. The division may be worth "several hundred million dollars," said analyst Gibboney Huske of Credit Suisse First Boston Inc.
"It's very comparable to what IBM did with Lexmark," said Huske, who rates Xerox a "hold."
Clayton Dubilier & Rice led a group in 1991 that bought International Business Machine Corp.'s printing division--then a typewriter factory in Lexington, Kentucky--to form Lexmark International Inc. Lexmark now is the No 2 inkjet and laser printer company.
Xerox also is in talks to sell half of its equally owned stake in Fuji Xerox to joint venture partner Fuji Photo Film, which bought its China business in December for US$550 million. The company said it also is negotiating to exit the financing business and sell its Engineering Systems division.
Xerox has about US$11 billion in financing receivables, and its engineering unit has annual sales of more than US$500 million, the company has said.
"Clearly there are pieces of (Xerox) that are very interesting," said Huske.
Investors may be interested in buying some of Xerox's small start-up companies that it calls "spinouts," Huske said.
Those include ContentGuard, a document rights management company in which Microsoft has an interest; Gyricon Media, which sells signs made of electronic reusable paper for retail stores; and InXight, which sells software that sorts Web browser searches.
"Ultimately those assets are going to be more interesting because of the ability to separate them out from the rest of the company," Huske said.
Selling the entire company
Xerox's shareholders likely would lose money if the company tried to do a leveraged buyout, said Standard & Poor's Corridore. The company's stock has dropped from a high of US$63.94 in May 1999.
"Just because trained professionals are going to buy the assets and run the business, instead of current management, doesn't mean they can run the business any better," said analyst Win Murray of the Liberty Funds Group in Boston, which sold about 700,000 shares in June.
Xerox, which reported its first quarterly loss in 16 years in October, has had its profits squeezed by rivals such as Japan's Canon and Ricoh, Germany's Heidelberger Druckmaschinen and Hewlett-Packard of Palo Alto, California. The company plans to fire 4,000 workers in the first quarter and doesn't expect to make a profit until the second half of the year.
"I don't see common stock shareholders getting a quick fix out of this either from the LBO story or the asset sale story," Murray said. "This is a long-term turnaround story."
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