The announced merger of FujiXerox and Xerox has been welcomed around the industry as the logical deal that will propel the new entity into a market leading position.
There has been no announcement from activists shareholders like Carl Icahn, but the sale of more than 1 million shares at the end of last week, (at a healthy profits and leaving more than 23 million Xerox shares to go), suggests there will be no further opposition from this quarter. Government approval will be needed before the deal completes, expected to be in July this year.
In practice the new business will have a revenue of around $18.2 billion, second only to HP at $18.8 billion and leaping above both Canon and Ricoh. But the deal will not be painless: redundancies, plant closures and product line consolidation are on the way. And by widespread acknowledgement, the office equipment sector is in small but steady decline. Board rooms across Japan will be discussing any reactions to the move.
Fuji Xerox has already announced plans for 10,000 job losses and plant closures in its own area of interest in Japan and Asia. But losses will spill into the US and Europe as still to be announced cost saving measures take effect. The combined business remove $1.7 billion from overhead costs within four years, the Fuji Xerox action will account for $450 million of this, so much more will be needed.
Fujifilm CEO Shigetaki Komori in a commentary on the plans, says the worldwide sales structure will be overhauled, there will be closures are integrations of manufacturing sites, “reorganisation of research and development, revision of product lineups aimed at improved business profitability, abolition and integration of head office functions and expansion of shared services and compression of fixed assets”.
Komori becomes chairman of the new business and takes one of the seven seats on the 12 strong board allocated to Fujifilm. Jeff Jacobson, who retains his job as CEO in the merged business, is more upbeat, focusing on the wider market possibilities and future opportunities for revenue growth. This is despite Xerox announcing a full year loss and a decline in revenue for 2016, the first year for Xerox as a stand alone company after a corporate split in 2016. While its Q4 performance indicated success in saving saving costs, it is a company on the back foot. He takes heart that the rate of decline is less then it was and that its own cost saving measures are bearing fruit.
A one bright spot is that equipment sales increased 4.7% in the year. Overall Xerox has been managing a decline in demand for office products in particular, though sales of its production equipment is also slower. In the fourth quarter of 2017, revenues from the high end third of the portfolio increased 7.3%, but thanks to increased revenue from contagious inkjet and iGen presses rather than increasing the installation base.
Its experience is shared. Fujifilm declares: “the market environment surrounding the document field has grown increasingly severe”.
The two have collaborated for many years as what began as a distribution partnership has deepened. Many of the products sold under the Xerox name are manufactured by Fujifilm. This has resulted in some dislocation of product introductions “limiting effectiveness in global deals”, according to Xerox, where products might be launched in one region and not become available elsewhere for up to a year. The latest example is the Iridesse six -olour press which is already available in the Fuji-Xerox demesne and has sold well since launch in NOvember, but which is not yet available in North America nor Europe.
There are also significant r&d overlaps, not only in toner products, but also in inkjet. Xerox has endured a number of false starts in inkjet, leading to the purchase of French development company Impika. The Brenva sheetfed inkjet press, Trivor and Rialto web presses are using Panasonic printheads. And while Xerox has promised commercial quality, these are not yet challenging offset, or even its own iGen machines. The HF ink has received widespread praise, but is not in wide use.
In contrast Fujifilm’s Samba inkjet heads are part of the Jetpress 720S B2 sheetfed press and are used by Heidelberg in its Primefire 106 B1 press. While Fujifilm has had no more success than Xerox in terms of continuous feed inkjet, a new press using the Samba inkjet heads is mooted. It has also shown an inkjet press capable of printing flexible packaging though its questionable whether this could operate in Europe. Inkjet where closer collaboration is obvious.
The Xerox iGen has stood as the flagship machine for more than a decade, now offering a fourth colour and the capability to handle lightweight cartonboard. However, lighter production machines from all Japanese providers have caught up in terms of quality. Xerox has also found dyed in the wool customers like Real Digital and Inc Direct invest in HP Indigo machines in the last year.
Jacobson has identified the opportunity for expanding sales in China as part of the appeal and China is a growth market for high end digital production equipment, with HP enjoying strong sales for Indigo.
Both sides have also identified the opportunity for digital printing in industrial print, Jacobson pointing to packaging, textiles, direct to object as strong possibilities; Shigetaki says that Fujifilm will take its inkjet technology into textiles.
The inkjet side of Fujifilm sites within its Information Systems division, specifically its graphic systems business, which is responsible for 11% of the corporations sales. With the merger this will fall in importance, though growth in inkjet print heads and inks as print becomes increasingly digital means the division remains important.
However, the company has suffered a decline in demand and price for its printing plates, along with Kodak and Agfa. All three have stated that demand is falling and that prices are under pressure, a combination that culminated in the deal for Fuji to buy Xerox.
The deal is framed so Xerox buys the 75% of Fuji Xerox it does not own and then Fujifilm will use the proceeds of that deal to buy 50.1% of Xerox, assuming effective control of the US business. Extensive cost cutting and synergistic savings will reduce overheads by £1.7 billion over the next four years.