In a surprise move, Xerox has announced a deal to acquire Lexington, Kentucky-based Lexmark, an acquisition that will create one of the largest printer makers.

Xerox said it has agreed to acquire Lexmark from a conglomerate of companies, including Ninestar, that have owned the printer manufacturer since 2016 in a deal worth some $1.5 billion. The merger of Xerox and Lexmark will create a powerhouse printer company, one capable of challenging industry leader HP.

“Our acquisition of Lexmark will bring together two industry-leading companies with shared values, complementary strengths, and a deep commitment to advancing the print industry to create one stronger organization,” said Steve Bandrowczak, chief executive officer at Xerox. “By combining our capabilities, we will be better positioned to drive long-term profitable growth and serve our clients, furthering our Reinvention.”

Xerox says the acquisition will improve its global presence, as well as help it compete in the growing A4 color market.

The transaction will also strengthen the ability of Xerox to serve clients in the large, growing A4 color market and diversify its distribution and geographic presence, including the APAC region. The new organization will serve more than 200,000 clients in 170 countries with 125 manufacturing and distribution facilities in 16 countries. Combined, Lexmark and Xerox have a top five global share in each of the entry, mid and production print markets and are key players in the large, stable managed print services market.

“Lexmark has a proud history of serving our customers with world-class technology, solutions and services, and we are excited to join Xerox and expand our reach with shared talent and a stronger portfolio of offerings,” said Allen Waugerman, Lexmark president and chief executive officer. “Lexmark and Xerox are two great companies that together will be even greater.”

“Our shared values and vision are expected to streamline operations and drive efficiencies, taking the best of both companies to make it easier to do business with Xerox,” added Bandrowczak.

Xerox went on to outline four specific benefits of the acquisition.

• Strategic fit: Xerox and Lexmark have complementary sets of operations, offering strengths and end-market exposures. Combined, the companies form a vertically integrated manufacturer, distributor and provider of print equipment and MPS, covering all geographies and client types with a well-rounded portfolio of print and print services offerings.
• Growth opportunities: Lexmark is a leader in the large, growing A4 color print and supplies market and has an opportunity to expand its OEM platform within the A3 equipment category. Once combined, Xerox expects to have a more comprehensive portfolio of products to enhance its offerings and reinforce its value proposition to clients, enabling growth across the portfolio of equipment and MPS, as well as incremental opportunities to increase penetration of its advanced Digital Services and IT Solutions.
• Financial benefits: The transaction is expected to be immediately accretive to earnings per share and free cash flow. Xerox expects this transaction to accelerate the realization of its Reinvention financial targets of revenue stabilization and double-digit adjusted operating income through an improved competitive position and exposure to faster-growing segments within print, as well as more than $200 million of identified cost synergies to be realized within two years of transaction close.
• Improved balance sheet: The transaction will immediately reduce Xerox pro forma gross debt leverage ratio, from 6.0x as of Sept. 30, 2024, to approximately 5.4x before synergies. Pro forma gross debt leverage will be reduced to approximately 4.4x with the benefit of $200 million of cost synergies. With improved free cash flow and a priority of repaying debt, Xerox expects to reduce its gross debt leverage ratio to below 3.0x over the medium term.

The Xerox board has already unanimously approved the deal, which is still subject to regulatory approval and approval by Ninestar shareholders.