Xerox to Get $435 Million in Backing From GE Unit
Xerox Corp. said Wednesday that General Electric Co.’s financing unit will provide $435 million in financing backed by equipment leases in Britain, sending shares of the troubled copier company up more than 20%.
Xerox also said it’s in talks with GE Capital to finance leases for Xerox customers in European countries. Xerox has said it wants to get out of customer financing, a move that could remove as much as $11 billion in debt from its balance sheet.
Xerox said its cash position will rise to about $1.8 billion with the GE financing. The financing will be repaid within 18 months.
After being shut out of the market for short-term IOUs and exhausting a credit line of $7 billion, Xerox has been able to provide financing for customers only when older leases expire. To raise cash and fund daily operations, Xerox sold its China operations in December for $550 million and plans to cut $1 billion in costs and sell as much as $4 billion in assets.
“It should get them through the next several quarters,” said Domenick Fumai, a bond analyst with BNP Paribas Inc. “This certainly gives them some breathing room.”
Increased competition and a bungled reorganization caused Xerox to report its first quarterly loss in 16 years in the third quarter. The company said Tuesday that it hired investment bank Blackstone Group for advice on how to better manage the company’s cash as it sells assets and reorganizes production.
Shares of Stamford, Conn.-based Xerox rose $1.25 to close at $7.13 on the New York Stock Exchange. The stock dropped 80% last year. Fairfield, Conn.-based GE rose 6 cents to close at $44.69, also on the Big Board.
The arrangement may be a prelude to Xerox selling its financing business, possibly to GE Capital, analysts and investors said. The difficulty of evaluating and separating lease agreements could be delaying a sale, they said.
“You have to do a lot of internal number crunching to even execute a lease,” said Robin Kollannur, a money manager at San Diego-based Brandes Investment Partners, which owns about 10.6 million shares of Xerox. “You can’t sell it as one individual product.”
Xerox leases about three-quarters of the equipment it sells worldwide. “That’s why we’ve been focused in the early phases of our restructuring on liquidity,” said company spokesman Jeff Simek.
Xerox probably agreed to back the financing with assets worth about 2.5 times the amount of the loan, Caroline Sabbagha, an analyst at Lehman Bros. Inc., wrote in a note to clients.
GE Capital, the world’s largest non-bank financial firm, has served as a lender to struggling companies in the past, such as the Montgomery Ward chain, which in December announced plans to shut down. The retailer was already 53% owned by GE Capital when it emerged from bankruptcy in 1999. GE Capital agreed to buy the rest for more than $650 million and gave up more than $1 billion in claims.
GE spokesman Ken Koprowski declined to comment and referred questions about the loan to Xerox.
Xerox must generate enough cash to pay back $2.7 billion in debt maturing this year, about half of which comes due by July.
“I think they’d sell [the finance business] in a minute if it was doable and they could get good terms,” said Gibboney Huske, an analyst with Credit Suisse First Boston.
