NEW YORK, AUG. 1 -- International Business Machines Corp., in a major step to reduce its holdings outside its core computer business, announced today that it plans to sell a majority interest in its U.S. typewriter and personal printer operations to Clayton & Dubilier Inc., a New York-based investment firm.
Clayton & Dubilier President Joseph L. Rice III said the deal was expected to have a total price tag of more than $2 billion. For Clayton & Dubilier, the planned deal would be the biggest in its 12-year history and is the kind of opportunistic buyout in which it specializes.
The firm, a private partnership that operates an investment fund, has earned enviable returns in the past by taking over industrial divisions spun off by large corporations, and it has boosted earnings through improved management.
Clayton & Dubilier sees opportunity in the deal principally because it believes that IBM is so big, and so focused on selling computers, that it has not been able to concentrate sufficiently on marketing the printers, keyboards and other products involved in the deal.
"These products just need to be marketed through their own sales force. That's the only way they're going to get the kind of attention that they need," Rice said.
The planned deal highlights IBM's current strategy of shedding relatively marginal businesses that divert the Armonk, N.Y.-based computer giant's resources and attention from its central interest in information and communications technology.
The deal is expected to be completed late in the year. As a first step following the signing of its agreement with Clayton & Dubilier, IBM said that it was forming a wholly owned subsidiary to consolidate the affected businesses, which are based in Lexington, Ky., and Boulder, Colo. IBM also said that the new company would reduce its work force by about 1,200 employees by the end of the year, to between 3,500 and 4,000 workers, partly through offering retirement incentives.
The new company, for which a name has not yet been chosen, will have annual revenue of more than $2 billion and would rank among the largest 200 industrial corporations in the United States. It will group together IBM's typewriter, keyboard, intermediate-level and personal printer and supply businesses, including manufacturing and development facilities.
"We will be able to focus our energies on businesses that we think are more central to our core," said Frank Metz, IBM's senior vice president for corporate finance and planning.
Clayton & Dubilier said it would help create an "entrepreneurial environment" at the new typewriter company by selling some stock to the company's managers and creating other incentives to allow employees "to participate in the financial success of the operation."
Previously, Clayton & Dubilier has been best known for its $836 million leveraged buyout of Uniroyal Inc. in 1985 and its purchase of the Oklahoma Safeway Stores Inc. stores.
While Clayton & Dubilier will be the majority owner of the typewriter business, the precise percentage of its ownership and the method of financing have not been determined. The deal will not be final for several months, but both companies expressed confidence that it would go through.
IBM will continue to buy some products, especially intermediate-level printers, from the new company to be created. IBM wishes to retain an ownership stake in the business in order to reap some of the benefits from its $350 million in investments in the early 1980s to modernize the Lexington, Ky., production facilities where the products are made, analysts said.
"They want to spin it off into friendly hands, where they can be assured that they will have supply, and where they can participate in growth over time," said Paul Zorfass, director of computer research at the Yankee Group, a Boston-based market research and consulting company.
In some ways, the planned deal is reminiscent of earlier transactions in which IBM parted with relatively marginal operations. In recent years it has sold its copier business to Eastman Kodak Co. and transferred some of its telecommunications operations to the West German company Siemens AG.