Xerox Acquires Affiliated Computer for $6.4 Billion, Branches Out to Data Management

Xerox has reportedly agreed to buy Affiliated Computer Services in a cash and stock deal estimated at $6.4 billion that will expand Xerox’s capabilities from more than copiers to outsourcing and data management. 

Xerox will pay 4.935 company shares and $18.60 in cash of each share of ACS (News - Alert), totaling $63.11 per share based on the closing price on September 25, 2009.

Ursula Burns, chief executive of Xerox, said revenue from services will triple to an estimated $10 billion next year from $3.5 billion in 2008.

"Putting these two together would provide a new solutions provider in the industry that we call: document and business process management," Burns said. "We don’t see the world going paperless." 

In keeping up with the recent trend, Dell (News - Alert) announced plans to buy Perot Systems for roughly $3.9 billion.

The deals represent the latest trend of computer hardware makers pushing into the higher margin technology services business, as a way to create a stable, recurring revenue stream for companies that may be dealing with a different economic time. 

"The connection of these two companies is called for by our clients, they’ve been telling us over time … that we need to bring these two infrastructures together," Burns said.

Additionally, it’s been rumored that Hewlett-Packard (News - Alert) may sell part of its outsourcing business. 

According to the deal terms, Xerox will assume ACS's debt of $2 billion and issue $300 million of convertible preferred stock to ACS's Class B shareholder. On an adjusted earnings basis, the deal is expected to add to Xerox's earnings in the first year.

J.P. Morgan and Blackstone Advisory Partners acted as financial advisers to Xerox for the deal, Citigroup Global Markets Inc was financial adviser to ACS and Evercore Partners was financial adviser to a special board committee at ACS. 

The deal is expected to close in the first quarter 2010.