Xerox The Latest To Split

After being a market leader, the company is taking drastic measures


Recent years have seen a significant trend emerge amongst once great companies: Splitting.

We have seen it with HP, who in October 2015, split after 75 years of existence as a single entity. They didn't really rock the boat or cause confusion amongst customers though, with one company being Hewlett Packard Enterprise and the other HP Inc. The idea behind the split amidst arguably the worst decade in the company's history, is to streamline both sides of the business, one server based hardware, the other the PC side of the business. It means that each company can concentrate on exactly what it needs to do, rather than needing to spread themselves too thin across different uses.

At the end of January 2016 another US industry stalwart, Xerox, became the latest company to use this strategy.

It is a strategy borne out of a declining business model, with considerably more competitors in the market who can often undercut the prices of the company and the declining need for the often paper based technologies in a digital focussed world. It is a very similar story to many of the companies who are being forced into this action, in that although they were once clear market leaders, their failure to adapt has cost them dearly.

The split is thought to have been pushed through by Carl C. Icahn, who in November and December last year took hold of 8.13% of the company. Icahn is one of the most famous advocates of splitting, having spearheaded the division of eBay and Paypal and attempted to do the same with the AIG group, although this ultimately failed.

A key reason for this strategy is that it is meant to provide increased shareholder value for businesses in a state of decline. It certainly fits well with Xerox's current situation, with revenue declining consistently over the past four years and the share price down 28% since January 2015. Therefore, this move seems like a good idea and could perhaps save a company intrinsically linked with the old way of working. It is hoped that this move will help them avoid the same fate as Kodak, Woolworths and Blockbuster.

However, things are not currently looking good for the company, who recently announced that they are to lay off 429 people in Bakersfield having formerly looked to bring in an additional 500 people in 2015. The market also didn't take kindly to the split and despite the hope that this would boost value for the company, shares were initially down after the split was announced.

Despite the success of some companies like Paypal and eBay after a split, it is an unpredictable strategy. For instance, HP initially saw their share price increase significantly after announcing the split, but after this growth, shares are now at a similar level as before this time. It is not a strategy that is guaranteed to work and the risk is that through splitting a company they are essentially removing safety nets.

Regardless of how the Xerox split turn out, the gamble is certainly going to be an interesting one to follow. 

Growth small

Read next:

Growth In A Mature Industry