Xerox to Divest Information Technology Outsourcing Unit - Analyst Blog

Business process and document management company Xerox Corporation (XRX) recently announced its decision to divest the Information Technology Outsourcing (ITO) business to Atos - a leader in digital services provider - for $1.05 billion. The transaction also includes an additional consideration of $50 million on closing, which is expected in the first half of 2015.

The initial proceeds of the divestiture will be used to boost share buybacks and acquisition spending. Xerox expects to increase its capital allocation for repurchasing shares in 2015 to approximately $1.0 billion and up to $900 million for acquisitions.  Also with this divestiture, Xerox intends to refocus on its document outsourcing businesses and other high-margin business services to offset the decline of the document printing business.

The complementary portfolios will support new levels of strategic collaboration between Atos and Xerox. While Xerox will benefit from Atos' global IT services capabilities and a diverse range of cutting-edge services, Atos will nearly triple its footprint in the U.S with Xerox's blue-chip ITO clients added to its portfolio. Atos and Xerox had long-serving business ties and the transaction is likely to strengthen their mutual business relationship.
    
Xerox expects to report this business as a discontinued operation in fourth quarter and full year results. With this divesture, Xerox expects fourth-quarter 2014 GAAP earnings from continuing operations in the range of 24 cents – 26 cents per share and adjusted earnings of 28 cents – 30 cents per share. For full-year 2014, GAAP earnings from continuing operations is expected in the range of 87 cents – 89 cents per share and adjusted earnings of $1.04 – $1.06 per share. Xerox also provided its guidance for full-year 2015. GAAP earnings from continuing operations are expected to be within 88 cents–94 cents per share and adjusted earnings within $1.05 –$1.11 per share.

Headquartered in Norwalk, CT, Xerox is a leader in the development, manufacture, marketing, servicing and financing of document equipment across the world.

Xerox currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look now include Pitney Bowes Inc (PBI), Canon Inc (CAJ) and CBIZ, Inc (CBZ), each having a Zacks Rank #2 (Buy).