Xerox (XRX) Overpays For ACS (ACS)

Dell (DELL) paid a price that it could not defend, at least financially, for Perot (PER) earlier this month. Xerox (XRX) has decided to follow Dell down the same road by paying an extraordinary premium for ASC (ACS), a business outsourcing operator. The price tag is $6.4 billion in cash and stock.

Xerox has a market cap of a mere $7.8 billion. The company’s primary reason for making the acquisition is that “Xerox becomes a $22 billion global company, of which $17 billion is recurring revenue – a significant boost to our profitable annuity stream.” The market is likely to drive Xerox’s stock into the ground.

The $2 billion premium that Xerox is paying is especially hard to prove because ACS is trading near its 52-week high of $52. In other words, the market has said the company is fully valued. And, it is. Last quarter ACS made only $97 million of net income on $1.7 billion in revenue, an awful margin.

Xerox, its business already only a shadow of what it was when the company was one of the top IT companies in the world three decades ago, may feel it needs a deal, but it cannot afford a bad one.

Douglas A. McIntyre

Sponsored: Find a Qualified Financial Advisor

Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.