Possible options may include change of control of pioneering document-copier firm

By David Benoit, Dana Cimilluca and Dana Mattioli 

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 11, 2018).

Xerox Corp. is in talks to potentially strike a major deal with Japan's Fujifilm Holdings Corp. as the U.S. document pioneer struggles to reinvent itself.

The two companies, which already have a joint venture, are discussing an array of possible deals that may or may not include a change of control of Xerox, according to people familiar with the matter.

A full takeover of the Norwalk, Conn., company isn't on the table, one of the people said. No deal appears imminent and one may not be reached.

Should there be a change of control of Xerox, it would mark the end of the independence of a stalwart of American industry that was an early technological trailblazer that has been bedeviled by a drop off in demand for office printing. A deal would give both Fujifilm and Xerox a chance to root out costs and make their legacy businesses more efficient, some of the people said.

Xerox shares, which topped out at more than $150 in the late '90s, now trade at just over $30 amid a continued slump in sales and profit. Xerox's market value stands at roughly $7.7 billion; it also has more than $4 billion of net debt.

The talks come as Xerox faces a second fight with activist investor Carl Icahn over its board of directors and Chief Executive Jeff Jacobson. Mr. Icahn, Xerox's biggest shareholder with a 9.7% stake, last month canceled a previous agreement with the company by pulling off his board representative to campaign for more board seats.

Mr. Icahn has warned Xerox is at risk of losing ground it staked out with decades of research and development. He worries the company could face a fate akin to Eastman Kodak Co., once one of America's former corporate titans, which filed for bankruptcy in 2012 and emerged a year later after selling assets and shedding unprofitable business lines.

Xerox was founded in 1906 in Rochester, N.Y., as the Haloid Company, a maker of photography paper. In 1947, Haloid entered an agreement that gave it a license to develop a xerographic machine, the invention of patent attorney Chester Carlson. Haloid introduced its first machine, the XeroX, in 1949, and the company officially changed its name to Xerox in 1961 and listed on the New York Stock Exchange.

Xerox and Fujifilm have a long history together. They struck a joint venture 55 years ago that is known as Fuji Xerox and sells copiers and printers in the Asia-Pacific region. Fuji Xerox is 75% owned by Fujifilm and now has about $10 billion in annual sales.

Xerox dominated the copier market for decades but by the 1970s new competitors from Japan chipped away at its empire after U.S. antitrust regulators forced it to license its patent portfolio. The Fuji Xerox joint venture helped the U.S. company fend off Canon Inc. and other rivals with low-end copiers, but by the end of the '90s the rise of email and desktop printers had upended its market and forced several painful restructurings.

Last year, the company broke itself in half, spinning its business-services operations into a new company dubbed Conduent Inc. The legacy company returned to its roots of making printers and copiers, an industry facing upheaval and an uncertain future.

Fujifilm, based in Tokyo, got its start in film and cameras and now derives most of its revenue from document services -- copiers -- and health care, from in-vitro diagnostic systems to pharmaceuticals and skincare products. Its market value is about $22 billion.

Xerox trades at a discounted price-to-earnings valuation compared with most of its peers, and while its stock popped on the first day of trading after splitting from Conduent, it was largely flat the rest of 2017 while the broader market soared.

Xerox has been cutting costs to try to make the remaining business more profitable. Meanwhile, it and rivals are hunting for more revenue in faster-growing fields.

Xerox touts its 11,500 patents and talks about innovation changing how companies and people communicate and share work. It is working on buzzy topics like automation, artificial intelligence and the Internet of Things, as physical paper becomes less and less the chosen mode of office communication.

It has said it is ahead of its plan on refocusing its business toward markets that are gaining, and in October it increased its 2017 profit forecast. The company typically reports fourth-quarter results near the end of January.

JPMorgan analysts said in October that they didn't expect the company to return to earnings growth until 2023, adding "there remains an ever-present risk of secular decline in printing documents." Still, JPMorgan recommended the stock for its dividend and potential to gain after recent slumps.

--Nathan Becker contributed to this article.

Write to David Benoit at david.benoit@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

(END) Dow Jones Newswires

January 11, 2018 02:47 ET (07:47 GMT)