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Xerox (XRX)
Xerox Copies the Competition
Xerox Inc. agreed to buy Affiliated Computer Services Inc. (ACS: Charts, News, Offers) for $6.4 billion today. The deal marks the biggest acquisition ever for Xerox, and is also the company's first major move under its new CEO, Ursula Burns. These types of company mergers have become very popular lately in the business technology industry. Dell (DELL: Charts, News, Offers) just bought Perot Systems Inc. (PER: Charts, News, Offers) last week while Hewlett-Packard (HPQ: Charts, News, Offers) started the trend with its acquisition of Electronic Data Systems (EDS: Charts, News, Offers) a year earlier. Most of Xerox's competitors have already made similar strategic maneuvers as Xerox Inc.'s recent ACS purchase, but does that make it the right move for Xerox?
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In Xerox's mind, the answer to that question is yes. The copier and fax manufacturer feels that Affiliated Computer Services is the missing link in its product offering. Xerox believes that it can already effectively provide clients the necessary automation and equipment technology, but also realizes that is not enough. Xerox thinks that customers want help with the "entire document infrastructure", not just the technology. As a result, Xerox is bringing in ACS for its information management business competencies. Xerox is hoping that Affiliated Computer's business service capabilities will give Xerox a more complete service offering.
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The acquisition will also strengthen and diversify Xerox's revenue stream, which has taken a hit from the recent economic downturn. The floundering economy has led to a decline in office equipment and supplies purchases as businesses look to cut costs and save money. Unfortunately for Xerox, 70 percent of its revenue is generated from equipment and supplies sales. However, the ACS acquisition is expected to triple its business services revenue to $10 billion. Xerox's business services will be significantly bolstered with ACS, and should give the copier manufacturer an alternative revenue source. The synergy created between Affiliated Computer Services and Xerox is also expected to generate $300 to $400 million in cost savings.
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Xerox Incorporated appears to have justifiable reasoning behind its decision to acquire ACS. The $6.4 billion purchase will help cut costs while adding to Xerox's service capabilities. ACS will also help strengthen Xerox's weaker information management capabilities. However, Affiliated Computer Services also comes with $2 million worth of debt. Xerox believes that ACS is worth the price, but nothing is a guarantee. Xerox is hoping that Affiliated Computers Services will give it the competitive edge it needs to surpass its competition in the business technology industry.
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Other News about Xerox and ACS
Xerox shares Overreacting to ACS Deal-- A blogger's opinion on Xerox's recent stock performance.
A Bumpy Deal History for ACS -- A closer look at the Affiliated Computer Services' past merger history. Is the past any indication of the future for ACS and Xerox?
Xerox Offers Customized Packaging with New Digital Solution; Opens Up Growth Market for Print Providers -- Xerox's new service. Will it help improve sales?
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