Xerox, the 109-year-old tech giant synonymous with the photocopier, announced Friday that it is giving up on its strategy to combine services with its traditional office machine business and would instead split itself into two companies.
One company would consist of the products of Xerox’s proud past: an $11 billion publicly traded firm that sells copiers, printers and scanners. The other would be made up of what many expected to be its future: a $7 billion company that manages call centers, collects tolls and performs other back-office services for government agencies and corporations.
The split follows a similar move by another member of the old-guard tech elite, Hewlett-Packard, which said last year that it would separate its desktop computers and inkjet printer business from servers, networking and cloud computing.
Xerox’s breakup comes amid pressure from Carl Icahn, a billionaire activist investor who is Xerox’s second-largest shareholder. He has been rattling for change for months.
“We believe the separation will greatly enhance value for [Xerox] shareholders,” Icahn said in one of a series of tweets about the company’s announcement Friday. As part of the shake-up, Icahn won the ability to appoint three members of the board of the services company.
The split unravels one of the chief accomplishments of longtime Xerox CEO Ursula Burns, who orchestrated the purchase of Affiliated Computer Services (ACS) in 2010, and it calls into question her future at the firm.
“What I wanted our board and our management team and me to do was to think about what the best path for the company is going forward, not what the best role is for me,” Burns said in an interview with CNBC on Friday.
Xerox has been struggling for years.
Originally based in Rochester, N.Y., it was once best known for inventing new machines — from the photocopier to the laser printer. But each new innovation was quickly replicated by competitors, and Xerox struggled to keep up, industry analysts said. Today, it has about 11 percent of the printing and copying market that it helped create, according to Gartner Research.
“They were relying on technological innovation, and people kept catching up with them,” said Ken Weilerstein, an analyst at Gartner Research.
Now Xerox is facing perhaps a more existential threat: environmentally conscious workers and their penny-pinching bosses who want to use less paper, not more, and have relegated the office copier and printer to an afterthought.
Burns pushed to acquire ACS for $6 billion in a bid to diversify Xerox’s business. But harmony between the companies was never evident, industry analysts said, and Wall Street became impatient as the company’s prospects continued to falter.
Xerox’s net income fell to $488 million last year from more than $1 billion in 2014. Its stock has tumbled 28 percent over the past year. (It was up nearly 5 percent Friday after the announcement of the split.)
The split of the company will leave whoever takes control of Xerox’s legacy printing business a daunting challenge — the same one Burns was trying to fix with the acquisition of ACS, industry analysts said. “They are still very reliant on printing, and it is not clear what they’re going to do about that,” Weilerstein said.
Just as unclear is what happens to Burns, who started at Xerox as an engineering intern in 1980. She became the first black woman to become CEO of a Fortune 500 firm in 2009 and has been recognized several times by Forbes as one of the most powerful women in the United States.
Carl Langsenkamp, a spokesman for Xerox, said in an emailed statement that Burns will discuss her recommendations for the future leadership of the companies with the board “at the appropriate time,” noting that “Ursula is — first and foremost — focused on delivering on our 2016 plan and executing the separation and strategic transformation we announced today.”
If she were to leave the company, it is possible there would be no remaining African American women running a Fortune 500 company.
“It’s a shame,” said Steve Mader, a vice chairman at Korn Ferry, an executive search firm. “There’s just more talent than that out there.”
Some governance experts doubt Burns will remain with Xerox, particularly since the decision to split the company was a reversal of a strategy she had pursued.
“I’d be surprised if she stayed,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It’d be unusual.”
But Mader said Burns still has a shot.
“She knows the business inside and out,” he said. “She took a big gutsy risk, and it didn’t work. That doesn’t mean she isn’t capable of running the original core business.”