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Fuji Buying Half Of Xerox Stake

15 Mar, 2001

Fuji Buying Half Of Xerox Stake

Xerox Corp. based in Stamford, CT, took an important step toward turnaround by selling half its stake in a joint venture, but the struggling copier maker still has plenty of work to do, analysts said.

"I think their turnaround is proceeding gradually and they're on track,” said Pete Enderlin, senior vice president of Ryan Beck in New York. “But they have to cut costs and eventually get their sales growth up to high, single-digit rates.” Xerox officials said they are taking those steps, including slashing 4,000 jobs by the end of the month and seeking to raise between $2 billion and $4 billion by selling some of its assets.

The company also is in discussions to arrange third-party financing for customers who buy its business machines, a move that would substantially reduce debt because Xerox would no longer provide the financing.

Xerox announced it had agreed to sell half its 50 percent stake in Fuji Xerox to Fuji Photo Film Co. for more than $1.3 billion. Xerox will retain a 25 percent stake in Fuji Xerox, a joint venture through which it sells its products in Asia, primarily Japan.

The agreement means Xerox will lose half its profits from the joint venture. Last year, Fuji Xerox generated about $70 million in profits for Xerox, company officials said.

While the deal provides Xerox with badly needed cash, it also changes the ownership structure of a successful partnership, said Benjamin Gomes-Casseres, who directs the MBA program at Brandeis University. The 39-year-old joint venture allowed Xerox to share its inventions with its Japanese joint partner without fear of creating a rival, Gomes-Casseres said.

"Possibly it will mean a wholesale shift of power, with the erstwhile silent partner Fuji Photo Film reasserting an influence it only had at the very start of the relationship,” Gomes-Casseres said. “Fully buying out a partner often works out better than changing ownership and expecting the same relationship,” Gomes-Casseres said. But he added that Xerox and Fuji Photo have a strong alliance and could pull off the change.

Xerox officials stressed that both companies retain uninterrupted access to each other's patents, technology and products.

Xerox has scrambled for more than a year to cope with increased competition, a botched sales force reorganization, sluggish sales and a precipitous drop in its stock price.

The company announced a turnaround plan last October that includes the sale of assets, cost reductions of more than $1 billion and a sharpened focus on its core business. In December, Xerox completed the sale of its Chinese operations to Fuji Xerox for $550 million.

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