M&A binge continues as Xerox buys ACS to get into services

xerox-1The acquisition binge continues in corporate America as Xerox said today it will buy Affiliated Computer Services in a cash and stock deal valued at $6.4 billion.

With ACS, the copier giant will now expand into services such as collecting tolls and installing computer systems in government agencies. The purchase price is $63.11 a share, a big premium on ACS’ Friday closing price of $47.50 a share.

Xerox will now join battle with HP in print managed services, something that HP expanded into with its $13 billion acquisition of EDS last year. It will also take on IBM global services as well as Dell, which last week bought Perot Systems for $3.9 billion.

Ursula Burns, Xerox chief executive, said in a statement that Xerox will become a $22 billion company, with $17 billion of that coming in the form of recurring revenues. Cerberus Capital Management tried to buy ACS two years ago for $6.2 billion, or $62 a share, but the private equity firm later withdrew the bid, which ACS rejected as too low. But those were the days before the big recession, and shareholders are likely to be quite happy with the deal, which provides $18.60 a share in cash and 4.935 Xerox shares for every ACS share. Xerox also assumes ACS’ $2 billion in debt.

Xerox said it will save $300 million to $400 million due to post-merger efficiencies in the first three years after the deal closes. Xerox’s services revenue will triple from $3.5 billion in 2008 to $10 billion next year, Burns said..

ACS, founded more than 20 years ago, has 74,000 employees, while Xerox has 54,000. The deal is expected to close in the first quarter of 2010, pending approvals. The ACS division of Xerox will be led by Lynn Blodgett, its current chief executive.