ANOTHER US corporate icon has decided that breaking up is the thing to do.
Xerox, whose name has long been synonymous with office copiers, has agreed to spin off its services business to its shareholders by the end of the year, separating it from the legacy hardware side, according to a person briefed on the decision.
A large part of the spinoff will incorporate Affiliated Computer Services, the business-outsourcing company that Xerox bought for US$6.4 billion in 2010, said the person, who asked for anonymity, before the plan was announced.
The remaining company would be focused on office supply products like copiers, scanners and fax machines, the person said.
The plan is expected to be announced when Xerox reports fourth-quarter financial results Friday.
Xerox, which was founded in Rochester, New York, in 1906, will be joining other big US corporations that have split apart or pared back in recent years, some driven by activist hedge funds seeking to increase returns on their shares.
Alcoa announced in September it would split in two, separating its commodities and metal products businesses. Hewlett-Packard decided to split in 2014. More recently, the chemical giants Dow Chemical and DuPont agreed to merge with the intent to split into three companies soon afterward.
Carl C. Icahn, who successfully campaigned for the separation of PayPal from eBay last year, played a role in Xerox’s decision.
Through his various investment funds, Icahn amassed an 8.13 percent stake in Xerox in November and December, saying the shares were undervalued. In a securities filing, he said at the time that his firm intended to have discussions with Xerox management and board “relating to improving operational performance and pursuing strategic alternatives, as well as the possibility of board representation.”
His disclosure came a month after Xerox’s chairwoman and chief executive, Ursula M. Burns, announced that the board had authorized a “comprehensive review of structural options” for the company’s business portfolio. At the time of that October announcement, Burns indicated that she was in favor of keeping the company together.
As part of an agreement with Icahn, three of his representatives will serve on the board of the services company after it has been spun off, the person briefed on the decision said.
Icahn did not return a phone call Thursday.
But he told the cable channel CNBC on Thursday that the plan was “a major move” that “will greatly enhance shareholder value.” Icahn said that he had several meetings with Burns and “applaud and respect her for doing what she believes shareholders want.”
A representative from Xerox, which is based in Norwalk, Connecticut, declined to comment on plans to spin off the services business and on any discussions with Icahn.
Shares of Xerox are down 28 percent from a year ago and down 13.5 percent since Nov. 23, when Icahn first announced he had taken a stake. The company now has a market value of more than US$9.3 billion.
In after-hours trading, its shares dipped slightly after The Wall Street Journal reported the plan of the split.
Xerox has been grappling with declining annual revenue for four consecutive years.
In a conference call with analysts last year, Burns was asked whether she saw strategic value in having the services business together with the hardware businesses.
“As we go through the review, that’s one of the things that we’ll validate,” Burns said.
For his part, Icahn has been waging multiple battles in the last few months. In December, he prevailed over the Bridgestone Corp. in a seesaw battle to acquire the auto parts retailer Pep Boys for US$18.50 a share, or about US$1 billion.
But in his public battle to break the American International Group into three parts, he has been less successful. On Tuesday, AIG outlined plans to streamline its businesses, but stopped far short of Icahn’s more radical demands for change.
Icahn, who says he owns 42 million shares of AIG, has not yet publicly responded to the company’s new strategy, and he could still start a proxy battle. In November, Icahn said he might propose that AIG add a director to its board who could take over for the insurer’s chief executive.
While Icahn has been an active proponent of divestitures and breakups, he is less keen on another hot area of Wall Street deal-making. He has been critical of inversions, where a US company merges with a foreign company and moves its headquarters overseas to take advantage of lower corporate tax rates.
In October, the investor announced that he had formed a US$150 million super PAC to fight inversions.