Storied Xerox to split its business into separate document and BPO companies

The company that pioneered the xerographic copier is restructuring

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Over 50 years ago, Xerox introduced photocopiers based on a dry process called xerography that largely did away with the requirement of carbon copies of documents. So popular was the concept and the technology that in many markets users didn't ask for a photocopy but a 'xerox' of a document.

Meanwhile, researchers at Xerox's Palo Alto Research Center developed technologies, such as Ethernet and the graphical user interface, that were the basis of many key subsequent technology developments.

Xerox, which over the years diversified into a business services and document management company, is now under pressure to reinvent itself again, shedding some of the new businesses that it acquired or grew into such as business process outsourcing and related services.

The company, with global headquarters in Norwalk, Connecticut,  is planning to divide itself into two separate publicly-traded companies, one focused on document technology and another on business process outsourcing services. The spinoff will largely consist of Affiliated Computer Services, the business-outsourcing company that Xerox bought in 2010 for US$6.4 billion, The New York Times reported late Thursday, quoting a person briefed on the decision.

The move by Xerox is apparently the result of negotiations with investor Carl Icahn, who acquired a significant stake in Xerox last year and said he would talk to the company about its future. Under the proposed plan, Icahn will get three seats on the BPO company’s board.

Xerox announced the proposed split ahead of its earnings call Friday. A company spokesman had earlier declined to comment on reports of a split. "We think this is a major move and will greatly enhance shareholder value," Icahn told CNBC ahead of the announcement.

The names and the leadership of the two proposed companies were not announced by Xerox, which aims to complete the separation by year end. While the document technology business had revenue of about $11 billion in 2015, the BPO unit had about $7 billion in 2015 revenue, over 90 percent of which was annuity based.

Xerox said the separation would help both businesses as they serve distinct client needs, have different growth drivers, operating models and capital structures.

By this strategy, Xerox would be taking a leaf from the some of its peers like Hewlett-Packard, which split into an enterprise-focused company and another that sells printers and PCs. E-commerce company eBay also spun off last year its PayPal payments processing unit.

The split, however, represents a dramatic change from Xerox's earlier strategy, which saw its strength in a diverse portfolio, addressing different business needs. "We are changing the way the world shops, learns, parks, publishes, does banking, receives healthcare and more. By helping businesses and governments of all sizes solve challenges, we’re making the world work a little better every day,” CEO Ursula Burns said in May last year.

In line with this strategy, the company said in August last year it had signed a definitive agreement to acquire RSA Medical, a provider of health assessment and risk management for members interacting with health and life insurance companies. Midas+, a Xerox company focused on the healthcare market, also acquired Healthy Communities Institute, a Berkeley, California-based company that offered a software-as-a-service platform that centralizes proprietary, healthcare and community data to help hospitals and other health organizations manage population health.

Xerox, however, had to make a mid-term change in its IT outsourcing business strategy. It decided in December 2014 to sell its ITO business to Atos for $1.05 billion, as this business had not acquired the scale to enable Xerox to offer its customers a differentiated offering. Under the deal, Atos would provide IT services to Xerox and its BPO clients, while the company focused on its BPO and document processing business.

Xerox, which was founded in 1906  in Rochester, New York,  reported Friday revenue of $4.6 billion in the fourth quarter of 2015, down 8 percent from the same period in the previous year. It had a profit of $285 million, an increase of 43 percent over the same quarter in 2014. Burns said in October that the board had decided to do a comprehensive review of "structural options for the company's portfolio."

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