Newspaper article International New York Times

Before Xerox's Split, Merger Never Meshed ; Chief's Decision to Shed Services Business Made Prior to Icahn Approach

Newspaper article International New York Times

Before Xerox's Split, Merger Never Meshed ; Chief's Decision to Shed Services Business Made Prior to Icahn Approach

Article excerpt

The chief's decision to shed the services business, largely consisting of Affiliated Computer Services, was made prior to Carl C. Icahn's approach.

By late November, Ursula M. Burns had finally conceded that the biggest takeover in Xerox's history was a $6.4 billion mistake, say people close to the company.

A onetime Xerox intern who climbed the ranks to the top to become the first black female chief executive in corporate America -- Ms. Burns had been the biggest champion of buying Affiliated Computer Services. The deal, which was announced in 2009, was instrumental in her effort to push the 110-year-old Xerox into significant new business lines.

Yet the technology outsourcing business never fit with Xerox's core documents operations. So even as Ms. Burns said publicly in October that she thought there was value in keeping the company together, within about a month she and her board were coming to the conclusion that the best move was to break the two apart.

Late last week, Xerox's fate was sealed, as the company announced plans to spin off its services business, largely consisting of A.C.S., as its own publicly traded company by the end of the year. The remainder of Xerox will include the technology that made the company synonymous with photocopying.

The names and leadership teams of the two companies have yet to be determined. Based in Norwalk, Conn., Xerox plans to cut about $2.4 billion in costs across both companies over the next three years. The company, which employs more than 140,000 globally, did not detail whether there would be job cuts.

The A.C.S. deal was born of what one person close to the company described as a bold push to recognize the changing landscape. Unlike another corporate icon also born in Rochester, New York -- Eastman Kodak -- Xerox realized that it needed to quickly push into digital businesses. Buying A.C.S. was intended to provide much-needed diversity.

Yet the deal was not enough to transform Xerox.

"Xerox started to lose speed in the technology race," said Abraham Seidmann, Xerox professor of computers and information systems and operations management at the University of Rochester's Simon Business School. "The hope was that they would find synergy between printing and the A.C.S. sales force. The split tells us that this synergy did not work the way they wanted it to work."

Xerox had a market value of more than $16 billion in 2010 after the acquisition of A.C.S. closed. It had plummeted to about $9 billion as of Thursday, as shareholders grappled with four consecutive years of declining annual sales. On Friday, investors welcomed the split, sending Xerox shares up 5.6 percent.

In November, as Ms. Burns and the Xerox board deliberated what to do, both came to recognize that drastic action was needed.

Both publicly and privately, Xerox and its advisers say that the emergence of the activist investor Carl C. …

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