Xerox Chairman & CEO Ursula Burns spoke with Stephanie Ruhle and David Westin on Bloomberg TV’s “Bloomberg <GO>” to discuss that in an agreement with investor Carl Icahn, Xerox will split into two publicly traded companies.
Xerox, With Icahn, To Split Into Two In Push Toward Services
Xerox Chairman & CEO Ursula Burns on Icahn’s involvement in the decision to split, Burns said: “The board did its analysis and came to its conclusion without speaking to Mr. Icahn at all. Fortunately when we did speak to him, as you know he’s a large holder of our shares, he agreed with the outcome we reached.”
On Icahn’s involvement going forward, Burns added: “On a go-forward basis he will be involved from a perspective when the company separates into two; he will have some governance input into the services business. Will not be engaged with the document technology business or with current Xerox business at all.”
On Xerox’s debt after the split, Burns said: “Most of the debt on our balance sheet is debt that is associated with Xerox having a financing business…So most of the debt will go over to the document technology business. So the debt is securitized with equipment that are in customer’s sites. Our services business will have a level of debt as well, but nothing as high as I said as the document technology business.”
On the impact on Xerox’s workforce, she said: “Every year Xerox has to drive automation, innovation and to drive productivity in its’ workforce. 2016 will be absolutely no different and our technology business will have to continue to automate…Our workforce will shrink very likely but it does every year as it becomes possible to do more with less. Small percentage, I think less than 1-2% of our employee base will be impacted.”
On her role, Burns said: “As far as my role as we go forward, I actually purposefully took this discussion off the table.” She did this “by basically saying I’m not going to think about it. It’s not part of the decision-making process. The decision-making process has to be about the business. Once we decide, which we have, now myself and the board, I’ll come forward with recommendations about leadership and we’ll start having that discussion.
The impact of the strong dollar, Burns said: “The strengthening of the dollar actually will be a benefit for us in that business infrastructure, a little bit of a pressure there. So the way that the macro economy is changing, having these two businesses that are fit and focused can actually move relatively quickly around these changes.”
DAVID WESTIN: As we’ve said this is a big day for Xerox. The company beat fourth quarter profit forecasts and announced it’s splitting into two different companies. One that will manage it’s hardware operations and another that will house it’s services business.
For more let’s bring in Xerox Chairman and CEO Ursula Burns. And first Ms. Burns welcome to Bloomberg GO and thank you very much for joining us on this big day for you.
URSULA BURNS: Thank you for having me.
WESTIN: Let me start with, I think, the first question which is what brought you to this stage? What made you decide that this was the best thing for your company? This is a big decision and to what extent was it outside factors? And what extent did Mr. Icahn play in it?
BURNS: It is a big decision for our company and it’s a decision driven from analysis of what’s happening in the market, what’s happening around the world. What customers, investors, and quite frankly our employees are actually driven by. Our board entered with me and my management team in an analysis in early October. And we looked at structural options and portfolio options and capital allocation options for the business. Deep analysis, we had great advisors who were helping us. And we came to the conclusion that given the strength that both of these businesses have, combine that with changes in the marketplace, with changes in the industry, competitor set, that it’s probably best for us, it’s best for us to be separate companies not together. We have two great Fortune 500 size companies after we separate. A document technology business and a services business.
Interestingly enough we came to that conclusion and what’s been reported is that this was driven by Mr. Icahn. Interestingly enough it was not. The board did its analysis and came to it’s conclusion without speaking to Mr. Icahn at all. Fortunately when we did speak to him, as you know he’s a large holder of our shares, he agreed with the outcome we reached.
On a go-forward basis he will be involved from a perspective when the company separates into two; he will have some governance input into the services business. Will not be engaged with the document technology business or with current Xerox business at all.
As I said I’m pleased with the fact that we came out in a place that’s strong for the business and it happened to align with what Mr. Icahn wanted to do as well.
WESTIN: So just to pin that down, to what extent did you bring Mr. Icahn into your strategic review to consult with him as opposed to go through the strategic review, come up with an answer, present it to him and just get his reaction?
BURNS: We never brought him into the strategic review. We did the whole review, came up with an answer and then spoke to him about it at his request. That was the way that the process was operated.
STEPHANIE RUHLE: So can you just walk us through, with this split, services was your big push. So help us understand why the split, why it makes sense if services was your growth area?
BURNS: Right services is clearly a topline growth area. And before I get too much into the details on services, I want to spend a little bit of time, 30 seconds, on our document technology business. We are the number one provider of document technology solutions around the world. We hold #1 market share from an equipment share perspective. We have leadership solutions. It’s a very, very high profit margin business for us. It throws off a large amount of cash and it has segments that we invest pretty intensely in to actually help to transform that, actually present pockets of growth. That business not growing that much on the topline competitive we are unbelievably strong and we are global in, and actually require some invest, will be one side of the business. It has a completely different kind of operating model than our services business.
Services business growing topline transition’s happening very quickly. Software as a service, cloud computing, mobility. This whole idea that the world is getting significantly smaller. Health care has changed. We provide solutions to all of these markets. And the topline is growing and investments are going to be higher in that business to drive that topline growth. Return to shareholders will be through a different model, our technology business will be a high cash return to business to our shareholders. Today we provide