Xerox Bets Big on Services

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So far, Xerox's role in the so-called business process outsourcing market has been minimal. Of the company's $3.5 billion in annual services revenue, $3.2 billion came from maintaining and managing printers and other office machines, according to Burns. About $300 million has been from "more advanced" process outsourcing services akin to what ACS does.

Burns' bet is that Xerox can apply its globally recognized brand and worldwide sales presence to expand ACS into Britain, Germany, Spain, and other parts of the world. About 92% of the Dallas-based company's revenues come from the U.S. "The rest of the world doesn't even know who ACS is," she says. Xerox also plans to use its technology for computerized scanning and organization of documents to improve such ACS tasks as operating the E-ZPass automated toll system, or processing insurance paperwork.

Dealmaking Frenzy

Xerox expects to save $300 million to $400 million in the first three years after the deal closes in the first quarter of 2010, and said the deal will add to profits in the first year after it's completed. On Sept. 28, shares of Xerox closed down 1.30, or 14.4%, at 7.68. ACS shares gained 6.61, or 14%, to close at 53.86.

Xerox's ACS buyout arrives amid a flurry of post-Labor Day dealmaking. In technology, Adobe Systems (ADBE), Intuit (INTU), and Google (GOOG) each announced acquisitions this month. In pharmaceuticals, Abbott Labs (ABT) said on Sept. 21 it would acquire the drug and vaccine business of Belgian chemical company Solvay for $6.6 billion.

Burns and her team at Xerox aren't known as dealmakers, and bankers point out that the company will likely have its hands full folding in ACS, which has 74,000 employees, compared with Xerox's 54,000. Burns argues that Xerox plans to run ACS as a standalone business, and can eliminate people from its processes. "It won't be tough at all because we have no intention of integrating it," she says.

Xerox, an icon of American business whose name is synonymous with photocopying, has been making a slow climb back from its nadir in 2001. If the company finally hopes to prove to investors that it's retooling for the Digital Age, it will need to diversify much more carefully than the last time it tried expanding beyond its bread-and-butter business.

Ricadela is a writer for BusinessWeek in Silicon Valley.

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