Xerox to Split Up; Carl Icahn to Get Three Board Seats

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Xerox Corp. is planning to split into two publicly traded companies, according to people familiar with the matter, making the century-old company the latest to slim down and narrow its focus.

Xerox, synonymous with once cutting-edge technology, plans to divide itself into one company containing its hardware operations and another housing its services business, the people said. The company is expected to make the announcement Friday when it reports earnings.

As part of the move, billionaire investor Carl Icahn will get three seats on the services company’s board, the people said. Mr. Icahn in November disclosed a stake that currently stands at more than 8% and said he would seek talks with the copier maker about its future.

Xerox had a market value of $9.4 billion Thursday afternoon.

By going through with this plan, Xerox would essentially unwind its largest acquisition ever, the 2010 purchase of Affiliated Computer Services Inc. for $5.6 billion.

In October, after years of sales and profit declines, Xerox Chief Executive Ursula Burns said the company was conducting a broad-based review of its operations. A month later, Mr. Icahn revealed in a regulatory filing that he had amassed a stake and intended to speak with management about pursuing strategic alternatives and “the possibility of board representation.” With an 8.1% stake in the company, he is now the second-largest shareholder after index giant Vanguard Group.

Mr. Icahn and Ms. Burns held talks in recent months about the breakup plan the board was pursuing, the people said. The two sides largely agreed and there was little acrimony, they added. The split is expected to be done within a year.

Mr. Icahn has had several successful engagements with companies in the midst of breaking up in recent years, including at eBay Inc., Manitowoc Co. and Gannett Co.

The Xerox move would come amid a trend in corporate America in which diversified companies are splitting into more highly specialized pieces. Hewlett-Packard Co. recently split into two publicly traded companies. One of the pieces, Hewlett Packard Enterprise, focuses on servers, professional services and software. The other, HP Inc., focuses on personal computers and printing.

Online-auction pioneer eBay spun off its PayPal payments-processing unit in 2015.

The move is a reversal from Ms. Burns’s position after the review was announced, when she said she stood by the company’s existing structure of keeping its two disparate units—selling business services and office machines, respectively—under the same roof. “We do see, to date, strategic value in having these two businesses together,” she said in October. “As you go through the review, that’s one of the things that we’ll validate.”

But that formula—in place since Xerox’s purchase of ACS almost six years ago to the day—has been sputtering. The company now makes more dollars handling services like data-center outsourcing and customer care than it generates from its namesake copiers and printers. But the growth in services hasn’t been enough to counter the slide in its traditional hardware operation, which the company warned could fall as much as 7% in 2015.

At the time, investors frowned on ACS deal, which was considered a bold move, adding 74,000 workers compared with Xerox’s then-54,000 person workforce.

Xerox is now on track to report its fourth straight year of earnings and sales declines Friday. Ms. Burns forecast revenue would be down 3% for the year before accounting for the stronger dollar, and that its services business would fall short of its profit-margin target. Its shares lost a quarter of their value last year and have shed an additional 13% so far this year.

Dana Mattioli, David Benoit

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