Xerox’s Heavy Debt Seen as Limiting Buyout Chances

Stamford, Conn.--Xerox Corp., whose shares have dropped 62% in the last year, is more likely to sell parts of its business than be acquired by leveraged-buyout firms because the document-processing company is carrying too much debt, analysts and investors said.

The company had talks with four leveraged-buyout firms last week, TheStreet.com reported Friday, citing people familiar with the negotiations. Analysts, though, said Xerox is an unlikely acquisition target. Xerox exhausted a $7-billion line of credit after being shut out of the market for short-term IOUs and has to repay $2.7 billion of its $16.4 billion in net debt this year.

“No one wants to touch someone with $16 billion in debt,” said analyst James Corridore of Standard & Poor’s Equity Services, who rates the shares “avoid.”

Xerox has said since October that it plans to sell $2 billion to $4 billion in assets to help repay debt, and has retained Blackstone Group for advice on how to better manage its cash. Xerox lost $384 million on sales of $18.63 billion last year.

According to TheStreet.com report, Texas Pacific Group; Clayton, Dubilier & Rice Inc.; Kohlberg Kravis Roberts & Co.; and Silver Lake Partners sent teams last week to Xerox’s headquarters in Stamford, Conn., for meetings.

“We announced we’re aggressively working to sell $2 [billion] to $4 billion in assets and to do that we’re meeting with a wide range of companies,” said Bill McKee, Xerox spokesman.

McKee would not confirm if the meetings with the buyout firms were taking place. KKR spokesman Josh Pekarsky and Christopher Tofalli, spokesman for Clayton, Dubilier & Rice, declined to comment. A spokesman for TPG was unavailable for comment.

Xerox shares fell 17 cents to close at $8.26 on Friday on the New York Stock Exchange..

Xerox said in December that it’s in talks to find investors for its inkjet printing business. The company doesn’t disclose the unit’s sales. The division may be worth “several hundred million dollars,” said analyst Gibboney Huske of Credit Suisse First Boston Inc.

“It’s very comparable to what IBM did with Lexmark,” Huske said.

Clayton, Dubilier & Rice led a group in 1991 that bought IBM Corp.’s printing division--then a typewriter factory in Lexington, Ky.--to form Lexmark International Inc. Lexmark now is the No. 2 inkjet and laser printer company.

Xerox also is in talks to sell half of its equally owned stake in Fuji Xerox Co. to joint venture partner Fuji Photo Film Co., which bought its China business in December for $550 million. The company said it also is negotiating to exit the financing business and sell its Engineering Systems division.

Xerox has about $11 billion in financing receivables, and its engineering unit has annual sales of more than $500 million, the company has said.

“Clearly, there are pieces of [Xerox] that are very interesting,” Huske said.

Xerox’s shareholders likely would lose money if the company tried to do a leveraged buyout, Corridore said. The company’s stock has dropped from a high of $63.94 in May 1999.