In Talks, Fujifilm Outshines Xerox -- WSJ
January 12 2018 - 3:02AM
Dow Jones News
By Mayumi Negishi and David Benoit
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 12, 2018).
TOKYO -- When Fujifilm Holdings Corp. first started a joint
venture in photocopiers with Xerox Corp. more than 55 years ago,
the Japanese company was in the shadow of its famous U.S.
partner.
Now, the positions are reversed: Fujifilm has reinvented itself
after the demise of its core product and is in good health, while a
decline in office printing has left Xerox languishing.
That is the backdrop for deal talks between the two companies
that The Wall Street Journal reported could include a change of
control at Xerox.
The idea animating the discussions, according to people familiar
with the matter, is that their existing partnership could
facilitate an integration that has the potential to yield major
cost savings. Xerox investors cheered the possibility Thursday,
pushing the stock up 5% to $31.86 and its market capitalization to
$8 billion.
Fujifilm has been an active deal maker for years, and said in
August it planned to spend more than $4 billion over the next three
years for acquisitions.
Once known mainly for photographic film and its global battle
against Eastman Kodak Co. for consumer sales, Fujifilm today
generates most of its more than $20 billion in annual revenue from
products other than the one incorporated in its name. It has
branched out into medical equipment, such as mammography machines,
as well as cosmetics and electronic materials.
Even in photography, it focuses not on film but on hardware,
such as high-end digital mirrorless cameras and its analog Instax
instant camera, popular at weddings and birthday parties. Its
printer and copier business faces long-term decline and yet
continues to deliver significant profit.
Fujifilm's alliance with Xerox, called Fuji Xerox, sells its
machines throughout the Asia-Pacific region. It was a 50-50 joint
venture when started in 1962; but Fujifilm gained control in 2000
when Xerox needed cash and the Japanese company paid $1.3 billion
for another 25% of the business.
The joint venture has recently been a source of angst for some
Xerox investors.
Last year, billionaire Darwin Deason, the company's
third-biggest shareholder, called on Xerox to renegotiate the joint
venture after an accounting scandal surfaced at Fuji Xerox, people
familiar with the matter said. He also raised concerns about the
power that Fujifilm could wield in any deal Xerox sought with other
parties, given the importance of the Asian market, the people
said.
Mr. Deason was the founder of Affiliated Computer Services,
which Xerox bought in 2010, later to be split off as Conduent Inc.
He maintains a 6% stake in Xerox.
Carl Icahn, Xerox's biggest shareholder with a 9.7% stake, has
also been pressuring Xerox, publicly pushing for new leadership and
board changes.
A major deal with Xerox, a more-than-century-old icon of
American technology, could enhance the prestige of Fujifilm's chief
executive, Shigetaka Komori. The 78-year-old is one of Japan's
longest-serving CEOs and a golf partner of Japanese Prime Minister
Shinzo Abe.
Analysts said a deeper alliance could bring dividends in the
copier business. Given the low prospects for growth, further
cooperation between the printer and copier businesses of Fujifilm
and Xerox could cut costs to offset falling revenue, they said.
A deal could also help Fujifilm chase the emerging market in
commercial digital printing. Manufacturers are starting to shift
away from offset printing for product labels and packaging.
Fujifilm's documents division, which includes Fuji Xerox,
accounted for 45% of the company's sales and almost 40% of its
operating profit in the six months ended September.
HP Inc.'s $1.05 billion acquisition of Samsung Electronics'
printer business in November showed how the $55 billion photocopier
industry is coming under increased pressure to cut costs and adapt
to changing office needs.
Fujifilm as well as Japanese peers Ricoh Co., Canon Inc., and
Konica Minolta Inc. are fighting to catch up to HP's fast-growing
HP Indigo Division, which controls more than half the digital
production of labels for high-volume products such as sodas and bar
codes.
Still, any move by Fujifilm to double down on printing could
expose it to risks in a declining market. The company said last
year that pressures to bolster earnings led to years of accounting
irregularities at Fuji Xerox branches in Australia and New Zealand.
That caused a nearly 30% fall in profit at Fujifilm's documents
division in the six months ended September.
The accounting scandal led Fujifilm executives to say they would
keep closer tabs on the joint venture.
Write to Mayumi Negishi at mayumi.negishi@wsj.com and David
Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
January 12, 2018 02:47 ET (07:47 GMT)
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