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Xerox To Buy ACS for $6.4 Billion

ACS CEO Lynn Blogett will report to Xerox CEO Ursula Burns who has only been in office since July 1

Xerox, which squandered the chance to bring about the PC revolution itself, has needed a growth solution for quite a while. Monday it said it found one and would spend $6.4 billion in cash and stock buying Affiliated Computer Services (ACS), whose $6.5 billion in revenues reportedly make it the largest business process outsourcer (BPO) on the planet.

In other words, it manages and automates paper and work processes. It also has its hand in IT services including infrastructure outsourcing, which the Gigaom blog figures makes Xerox a cloud player.

The purchase is supposed to "transform" Xerox, which claims that pairing its document technology with ACS' BPO smarts will create a "new class of solution provider."

ACS is used to 5% or 6% growth a year but it does most of its business in the US - a tidy chunk of it coming from the United States government and healthcare - leaving Xerox to run with its offerings in the rest of the world. It figures the operation will benefit from its globally recognized brand and some IP it can bring to the party to build new solutions and to scale existing ones.

The BPO marketplace ACS plays in is supposed to be worth $150 billion and only 20% of Xerox-ACS customers overlap so Xerox is figuring on cross-selling into a combined market it estimates is worth $500 billion if you throw it the $250 billion ITO market.

If nothing else the acquisition will turn Xerox, which competes with HP in printers and print managed services, into a $22 billion-a-year company with $17 billion in recurring revenue. It will triple the revenues derived from services to an estimated $10 billion next year. Services have become hot as business tech spending slowed.

Last fall Xerox cut 5% of its people to cope with flagging hardware demand and it's looking to cut $300 million in expenses this year. ACS, on the other hand, has proven pretty recession-proof.

Xerox expects the deal to accretive year one. The transaction should close in Q1.

Xerox will be paying ACS stockholders $63.11 a share: $18.80 in cash plus 4.935 Xerox shares for each of theirs, roughly 30% cash. It will also assume ACS' $2 billion debt. It works out to a 33%-34% premium.

Xerox plans to run the Texas-based operation as an independent subsidiary with existing management in place and presumably most of its 74,000 people.

It's calculated annualized cost synergies of $300 million-$400 million over the next three years stemming from expense reductions from eliminating public company cost, procurement and using ACS expertise in back-office operations to handle some of Xerox' internal functions.

ACS CEO Lynn Blogett will report to Xerox CEO Ursula Burns who has only been in office since July 1. She is the first African-American woman to run a Fortune 500 company and she's planning on making some small acquisitions once ACS is in place.

With EDS gone to HP and Perot Systems going to Dell, that leaves CSC, Unisys and Accenture still large independent service companies.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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