Xerox to acquire outsourcing firm ACS for $6.4 billion

Once a global IT powerhouse, Xerox corp, said yesterday that it would acquire BPO service provider Affiliated Computer Services for $6.4 billion in a cash and stock deal to transform itself into a leading global enterprise for document and business process management.

Under the terms of the deal, shareholders of the world's largest diversified business process outsourcing (BPO) firm, ACS will receive a total of $18.60 per share in cash plus 4.935 Xerox shares for each ACS share they own. 

In addition, Xerox will assume ACS's debt of $2 billion and issue $300 million of convertible preferred stock. Xerox said that the deal values ACS shares at $63.11 each, a premium of 34 per cent to the closing price of Xerox stock on 25 September.

"By combining Xerox's strengths in document technology with ACS's expertise in managing and automating work processes, we're creating a new class of solution provider," said Ursula Burns, the chief executive officer of Norwalk, Connecticut-based Xerox. 

Xerox with a market cap of $7.8 billion, will become a $22 billion global company, of which $17 billion is recurring revenue - a significant boost to the profitable annuity stream. The revenue generated from services will triple from $3.5 billion in 2008 to an estimated $10 billion next year.

But Burns will find it hard to justify the $2-billion premium that Xerox is paying since ACS had a net income of only $97 million on revenue of $1.7 billion in the last quarter.