Report: Xerox Seeks to Acquire RR Donnelley; What It May Mean for the Printing Industry

CHICAGO — It may only be the second week of July, but the reported merger talks between the nation’s largest printer and one of the industry’s biggest technology providers would certainly qualify as the summer’s biggest blockbuster.

Bloomberg is reporting that Xerox Corp. is in the early phase of negotiations to obtain Windy City printing giant RR Donnelley (RRD). According to the news organization’s sources, Xerox would merge some aspects of Donnelley with its copier, printer and related services business, with the balance being folded into Xerox’s business process outsourcing services.

Such a deal would pre-empt Donnelley’s upcoming split into three publicly traded companies slated to be finalized this October, a move that was first announced last year.

The sources spoke on the condition that they not be identified, as the negotiations are private and they are not authorized to comment.

As might be expected, Carl Langskamp, director, global analyst/public relations for Xerox, would not address the rumor. “We don’t comment on market speculation,” he said in an email to Printing Impressions.

Likewise, RR Donnelley did not immediately respond to a request for comment.

RR Donnelley, which registered industry-leading sales of $11.6 billion according to the most recent Printing Impressions 400 list of top printers, has a market value of roughly $3.9 billion, the Chicago Tribune said. Xerox has a market value of about $9.6 billion.

The news spiked shares for both companies, with RRD jumping as much as 12% in after-hours trading. Xerox topped out at a 3.2% hike.

What are some of the ramifications for the graphic arts industry if a potential deal were to become a reality? Marco Boer, VP of consultancy IT Strategies, sees the deal giving Xerox the growth it has been unable to achieve organically. The really interesting proposition would be Xerox’s new position along the value chain, where it would compete with some of its biggest print provider customers.

“It may not be a big risk as Xerox’s presence in commercial printers — as a share of its business — is relatively low, but it is bound to make some big customers unhappy,” Boer said. “It also makes it more difficult for Xerox to be acquired by another company. There may be a second play to all this, where Xerox sells some of the RRD divisions after the deal closes.”

Boer added that such a deal would provide RRD with a more well-heeled parent capable of providing increased resources. And while many details of a potential deal have yet to come to the surface, he noted that in a transaction of this magnitude “the transaction costs associated with it will make the bankers and lawyers happy.”

Mark Michelson, editor-in-chief of Printing Impressions, also weighed in with his initial, first-day reaction. “I guess, as Neal Sedaka’s lyrics imply, ‘Breaking Up Is Hard to Do’ for large companies. Here’s RR Donnelley in the process of breaking up into three companies reportedly in talks with Xerox, which — partly being driven by Carl Icahn’s financial stake and influence — is looking to separate the $11 billion Xerox document technology business (led by newly promoted CEO Jeff Jacobson) from its $7 billion business process outsourcing enterprise, which will be called Conduent.

“As Marco Boer referenced, I’ve always found it of great interest that large, digital printing equipment solution providers are able to maintain separate business process outsourcing services enterprises that, in some cases, could potentially compete with some of the printing customers to whom they’re also trying to sell or lease their equipment. If the RRD acquisition were to come to fruition, that only helps to bring that somewhat contentious topic back to the industry forefront.

They say — similar to today’s marriage and divorce rates — that only a little more than half of M&A deals prove to be successful over the long run,” Michelson added. “This proposed coupling of industry powerhouses will have everyone watching to see if they can work through all of the complexities to actually make it down the alter to say their I dos.”