Xerox to Live On — as a Tracking Stock for Its New Owner

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Wednesday morning’s announcement that Japan’s Fujifilm Holdings would take a controlling stake of 50.1% in Xerox Corp. (NYSE: XRX) in a deal that exchanges Fujifilm’s $6.1 billion stake in a joint venture with Xerox — called Fuji Xerox — for newly issued Xerox shares valued at the same amount. Fuji owns a 75% stake in the Fuji Xerox joint venture.

The new company will retain the Fuji Xerox name and maintain its listing on the New York Stock Exchange, trading under the existing XRX ticker symbol. In essence, Fuji Xerox becomes a tracking stock for Fujifilm shares in the same way that Sprint is a tracking stock for Softbank. Current Xerox CEO Jeff Jacobson will remain as chief executive of Fuji Xerox.

Xerox shareholders will receive a one-time special dividend payment of about $9.80 per share and retain a 49.9% ownership stake in the new Fuji Xerox.

The deal is expected to deliver at least $1.7 billion in annual cost savings by 2022 and about $1.2 billion by 2020. Just ahead of this announcement, Fujifilm announced that it will fire about 10,000 of the 47,000 employees currently employed at Fuji Xerox, a move the company estimates will cut costs by about $450 million annually.

A lingering question is how activist investor Carl Icahn and shareholder Darwin Deason, who together own about 15% of outstanding Xerox stock, will respond to the news. The pair had been pushing for Xerox to explore “strategic options,” fire the CEO and negotiate a better deal with Fujifilm.

Fujifilm CEO Shigetaka Komori said:

I am confident that Fujifilm’s ability to drive change as well as its experience of successful reinvention will give a competitive edge to the new Fuji Xerox, delivering significant value creation to shareholders of both the new Fuji Xerox and Fujifilm. We are delighted to welcome Xerox and its employees to the Fujifilm family and look forward to combining our strengths towards jointly shaping the future of our industry.

Komori will be chairman of the new company’s 12-member board of directors. The board will include seven members — including Komori — appointed by Fujifilm’s board and five independent directors appointed from Xerox’s board.

The transaction is expected to close in the second half of this year and is subject to customary closing conditions, regulatory approvals and approval by Xerox shareholders.

Xerox shares traded up about 9.5% early Wednesday morning, at $35.79 in a 52-week range of $26.64 to $37.42, a new high set shortly after the opening bell. The stock’s 12-month consensus price target had been $37.44 before the deal was announced.

Fujifilm shares traded down about 8.3% in Tokyo at ¥4,190 (about $38.46).