Xerox split with Conduent complete
- Shares of Xerox spiked Tuesday after upgrades by two credit agencies.
- Xerox receives $1.8 billion cash transfer from Conduent to help pay off roughly $2 billion in debt.
Analysts and shareholders were rewarding Xerox Corp. for finally setting free its business services division and creating two multi-billion dollar publicly traded companies over the weekend.
Shares of Xerox rose nearly 20 percent, or $1.14 per share, to $6.89 in trading Tuesday, after JP Morgan and Credit Suisse upgraded their views on the company.
In separate reports, they described Xerox as "more focused" and set up for "several constructive developments."
Conduent closed the day at $14.90, down 5 cents, under the CNDT symbol.
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"Today is an historic day for Xerox. The successful completion of the separation sharpens our market focus and commitment to our customers," Xerox CEO Jeff Jacobson said in a statement. "I am confident the transformational actions we are implementing position Xerox for long-term success and unlocks shareholder value."
Xerox now returns fully to its downtown technology and hardware business, which employs roughly 5,5000 in the Monroe County area. The $11-billion a year business has struggled to turn around several quarters of declining revenues.
Conduent gave Xerox a $1.8 billion cash transfer to help pay off roughly $2 billion in debt. Also, Jacobson officially takes over as chief executive for Ursula Burns.
The company has seen annual revenue and net income decline every year going back to at least 2011. It dropped roughly $2.5 billion in total revenues from 2011-2015, according to its own reports.
Jacobson has been leading a transformation of that business by shedding jobs and bringing about improved operational efficiencies. He told The Wall Street Journal that the company will likely eliminate more jobs in the upcoming year with roughly $1.5 billion in cost-cutting yet to occur.
Globally, the company eliminated 11,800 jobs in the first 10 months of 2016.
The Norwalk, Connecticut-based company also plans to launch several new products and focus more on small- to medium-sized clients, efforts JP Morgan sees as slowing revenue declines and improving operating margins in the short-term.
"These strategic initiatives may slow, but not reverse, secular revenue decline over the next 5 years, in our view, but they should buoy margins," wrote several analysts in a paper with JP Morgan. "We think there’s a buying opportunity here. Aside from improved market focus, the legacy Xerox business is now well positioned to focus on cash-flow generation and to return capital to shareholders."
It set a target price of $10.50 for shares of Xerox.
Credit Suisse analysts added that Xerox continues to operate in a "challenged" market but has a long-term strategy to offset declines. Short-term revenues, it said, will remain under pressure with revenues expected to fall about 5 percent in fiscal 2017 and 3 percent in fiscal 2018.
"We remain cautious about overall printing spend, but believe that management is realistic and has a long-term version of moving the business away from mature declining markets to grow segments such as graphics and Manager Print Services," according to the Credit Suisse report.
Conduent takes in about $6.7 billion in annual revenue with roughly 93,000 employees in a $260 billion industry with annual growth in the mid-single digits. Conduent will be headquartered in New Jersey, and will employ about 600 people in the Rochester area.
Conduent CEO Ashok Vemuri rang the bell of the New York Stock Exchange to kick off a new year of trading that saw the Dow Jones Industrial Average climb 119 points to 19,882.
"Even if we stood still, we would be able to generate a lot of business," Vemuri said during a taping with CNBC. "We have scale, we have size and we have a management team that’s experienced. We may be new to the exchange. We may be new as a public company but we've been in business for over 30 years.
"In the last six months, we have spun off from Xerox which is not a trivial task itself."
Under the separation, Xerox shareholders will receive one share of Conduent common stock for five shares of Xerox common stock held at the close of business on Dec. 15, 2016.
Jacobson and other Xerox officials are expected to ring the opening bell of the New York Stock Exchange on Wednesday.
TCLAUSEN@Gannett.com