It did not take Ursula Burns long to put her stamp on Xerox Corp. as CEO, as the Norwalk-based company reached a $6.4 billion agreement to acquire Affiliated Computer Services, a massive provider of outsourcing services.
Dallas-based ACS bills itself as the world”™s largest, diversified business-process outsourcing (BPO) company. It manages paper-based work processes and provides specialized BPO and information-technology services for industries that range from telecommunications, retail and financial services to health care, education and transportation.
ACS is the largest provider of managed services to government entities in the United States, with 1,700 federal, state and municipal agencies in its customer base.
ACS closed its 2009 fiscal year ending June 30 with a $350 million profit on $6.5 billion in revenue. The company had 74,000 employees at the close of June; Xerox had 54,700 at that point.
The deal came less than three months after Burns was promoted to CEO, replacing Anne Mulcahy, who is now chairman of Xerox.
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Burns said Xerox would run ACS “independently” not unlike how it manages Global Imaging Systems, a Florida-based provider of outsourced technology services to small and mid-size businesses that Xerox acquired in 2007.
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“The reason why we pursued this is that our customers have been telling us that they need a connection, they need a more deeper connection between back-office document infrastructures and front office business process services,” said Burns, in a conference call with investors the morning the deal was revealed. “Putting our two companies together allows us to do this.”
Burns said ACS provides Xerox with a particularly compelling opportunity in Europe, where she hopes to bolster ACS”™ relatively weak business there with the significant account relationships managed by Xerox”™s sales force.
“We have sales people around the world who are what we call global account managers,” Burns said. “These are not people who sell any specific line of business. They are close with the clients and (have incentives) to expand Xerox”™s reach in any line of business. Those connections will be used to actually bring ACS”™ expertise into the client base and to have ACS do most of the selling of their line of business and their expertise.
“So we are not thinking in the beginning at all about retraining our entire sales force to be BPO sales people,” Burns added. “That is not what is necessary here. What is necessary is that we have reached a connection into the account so that ACS can actually do their magic in the account.”
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The companies hope to complete the deal in the first quarter of 2010. ACS shareholders 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”™ debt of $2 billion and will issue $300 million of convertible preferred stock to ACS”™ Class B shareholder.
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Xerox expects the merger to result in annualized cost savings between $300 million and $400 million, in part by shifting some of Xerox”™s own BPO business to ACS.
On the operations side, the companies did not immediately state how many jobs could be eliminated in the merger, but Affiliated Computer Services CEO Lynn Blodgett said Xerox”™s approach should allow it to run the combined business more efficiently.
“We deal with literally tens of millions of images each day,” Blodgett said. “A human being will look at that image on a screen and they will ”˜pipe”™ the information ”¦
I can tell you that with the investment of over $1 billion a year that Xerox puts into image-based solutions, their grasp of how to view data in that kind of unstructured data is a light year ahead of where we are and will allow us to be able to eliminate a lot of that cost. I mean labor is our largest cost and this is something that goes right to the heart of that cost for us.”
