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New York Business Journal: Scott Rostan Why a Xerox merger with Fujifilm beats keeping a joint venture

By Anthony Noto

Joint ventures don’t always work. It’s only a matter of time until one half of the partnership wants to cash in or gain control.

That’s why it makes sense for Xerox Corp. to ink a deal, according to M&A expert Scott Rostan.

I spoke with the former Merrill Lynch analyst and current Training The Street CEO on why the Norwalk, Connecticut-based copier and printer manufacturer needs to merge with the JV company it created with Fujifilm Holdings Corp. more than 55 years ago.

In recent years, Xerox had lost its innovative stride, and shareholders had been clamoring for change. Also, Fujifilm touted a $22 billion valuation while Xerox (NYSE: XRX) — founded in 1906 in Rochester, New York — was hovering at $8 billion. One especially loud activist investor, Carl Icahn, called on Xerox to sever ties with Tokyo-based Fujifilm (OTC: FUJIF, FUJIY) completely.

While it’s unclear as to whether Icahn is completely happy with the Xerox announcement, Rostan expects the octogenarian will at least enjoy cashing in on his investment.

Read on to hear more of what Rostan thinks of the Xerox/Fujifilm JV and the pending merger agreement:

Why is a merger better for Xerox, instead of a JV?

Momentum and forces were moving against Xerox. The digitization and technology changes have been hard for the copier company to wrestle with, and an activist investor like Icahn publicly calling for a transaction. Put both of them together and a deal with Fujifilm may make the best sense for Xerox shareholders. Having the minority, 25 percent, stake in the existing JV means they don’t control their own destiny. Again pushing the company towards a monetization event.

What wasn’t working with this JV?

As an investor, Icahn wants a fair return on his investment. He has been a vocal critic of the Xerox leadership and board, so this deal monetizes his investment while moving Xerox’s assets under the Fujifilm’s management and board’s control.

Are we going to see M&A volume increase in 2018?

2018 is off to a red hot M&A start and the pieces are in place for this to continue: high stock prices and historically low interest rates give companies ample fire power to acquire. A growing economic landscape [creates] an animal spirit and confidence. Like dominoes, deals often beget deals as companies fear being left behind of their competition. The tax reform also frees up overseas cash, and gives companies even more firepower.

But, ultimately, transactions should occur because they make strategic and financial sense. Companies can find smaller targets to expand product offerings or geographic reach since their M&A cannon is full of dry powder. Industries with limited organic growth will probably see strong M&A activity in 2018 – like consumer products. And continue to see high levels of divestitures as companies are rewarded for a more focused business portfolio.