By: Health Insurance
Submitted: 2009-10-08 12:03:28 | Word Count: 605
Xerox said Monday it will buy Affiliated Computer Services, which has substantial Kentucky operations, for about $6.4 billion in cash and stock, joining the expensive race among technology companies to broaden their offerings.
Xerox said the deal will create a $22 billion business that combines Xerox's copiers, printers and document management services with the "business process outsourcing" of Dallas-based ACS. Outsourcers like ACS take on tasks for other companies, such as helping to manage payroll or run health care plans.
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Xerox's offer amounted to a 33 percent premium over ACS's closing stock price on Friday, although the value fell as Xerox shares lost $1.29, or 14 percent, to close at $7.68, while ACS shares jumped $6.61, or 14 percent, to $53.86.
The move takes Xerox deeper into the back-office operations of its customers.
Kentucky's ACS employees are expected to benefit under the deal for that very reason, said Tom Blodgett, the Lexington-based chief operating officer of commercial operations for ACS.
"We plan on leveraging aggressively Xerox's customers ... and go in there and offer traditional ACS services to those clients," he said. "We think that will translate into additional jobs for ACS in Kentucky."
Blodgett said it would likely be the middle of next year before "we start seeing any significant projects" related to the Xerox that could add workers here.
The $6.5 billion company is the third-largest private employer in Lexington with 2,000 workers and sixth-largest in Kentucky with 4,000. It employs 74,000 worldwide.
Its operations include call centers and also technology outsourcing, such as processing of health insurance claim forms, mortgage loan statements and check imaging for banks.
For Xerox and rivals like Dell and HP that have made similar deals, part of the logic is to acquire a company that has tighter relationships with its customers because they provide more critical services, said Craig Le Clair, an analyst with Forrester Research. Businesses have more at stake outsourcing their payroll or accounting systems than buying copiers or personal computers. And companies that provide those services end up with steady revenue streams from multi-year contracts.
"Great move by Xerox," Le Clair said.
Investors who knocked down Xerox's stock Monday were taking a different view of the deal.
BMO Capital Markets analyst Keith Bachman praised Xerox for trying to diversify but was not sure how likely it will be that Xerox or ACS can sell more products and services to each other's customers. "We see less than optimal initial strategic overlap," he said in a note to investors.
The companies said ACS will function independently and be headed by ACS CEO Lynn Blodgett, brother of Lexington's Tom Blodgett.
Xerox said it expects between $300 million and $400 million in annual cost savings from synergies, but Tom Blodgett said he doubts those would affect Kentucky's employees.
"There's no real overlap of skill sets," he said. "Our people are doing very specific things for very specific customers."
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