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Xerox Exploring Strategic Options for its Financing Business

March 19, 2019, 07:30 AM
Filed Under: Industry News

Xerox Corp. is exploring a possible "strategic transaction" for its customer financing business. Its financing-related debt amounts to $3.4 billion of Xerox’s total debt of $5.2 billion, as of Dec. 31, 2018. The company said 4 percent of its $7.6 billion in revenues comes from financing.

The Connecticut-based company disclosed the information in a presentation this month, which it filed March 18 with the Securities and Exchange Commission.

“In connection with the company's initiative to simplify and optimize its operations, the company is currently exploring the possibility and feasibility of a strategic transaction involving its customer financing business and/or related assets,” the presentation states. “That process includes discussion of various transaction structures with potential counterparties.”

“No decision or commitment has been made by management or the board regarding specific terms nor potential structures of any such transaction, and there can be no assurance that the process will result in a transaction.”

The company added that if such a transaction were to occur, the use of any potential proceeds received as a result of the transaction would not be finally determined until after receipt.

According to Xerox's 2018 10-K filing, the company finances a large portion of its direct channel customer purchases of Xerox equipment through bundled lease agreements. It also provides lease financing to end-user customers who purchased Xerox equipment through its indirect channels.

“We compete with other third-party leasing companies with respect to the lease financing provided to these end-user customers. In both instances, financing facilitates customer acquisition of Xerox technology and enhances our value proposition, while providing Xerox a reasonable return on our investment in this business,” the company states in the annual filing. “Additionally, because we primarily finance our own products and have a long history of providing financing to our customers, we are able to minimize much of the risk normally associated with a finance business.”

Because its lease contracts allow customers to pay for equipment over time rather than upfront upon installation, it maintains a certain level of debt to support its investment in these lease contracts. The company funds its customer financing activity through a combination of cash generated from operations, cash on hand and proceeds from capital market offerings.

At Dec., 31, 2018, the company had approximately $3.5 billion of finance receivables and $442 million of equipment on operating leases, or total finance assets of $3.9 billion. It maintains an assumed 7:1 leverage ratio of debt to equity as compared to its finance assets.

The news comes as Xerox said its plans to simplify operations in moves that would lead to at least $640 million in gross savings this year and $1.5 billion by 2021.

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