By Jaspreet Singh and Aditya Soni
(Reuters) -Office equipment manufacturer Xerox (NASDAQ:XRX) has agreed to buy Chinese-owned printer and printing software maker Lexmark International in a $1.5 billion deal to expand its presence in Asian markets and better compete in an industry upended by the digital age.
The purchase from Ninestar, PAG Asia Capital and Shanghai Shouda Investment Centre will bring Lexmark back to U.S. ownership. Formed out of IBM (NYSE:IBM) in 1991, Lexmark was sold to a group of Chinese investors in a $3.6 billion deal in 2016.
Xerox, a household name globally, has posted revenue declines for five straight quarters as demand for printing equipment sputtered and it faced tough competition from HP (NYSE:HPQ) and Canon.
Its shares, down more than 50% this year, jumped 7% on Monday.
Lexmark, already a Xerox supplier, will boost its presence in the A4 color printing segment, one of the few expanding areas in an industry facing challenges due to the shift to digital documents.
The combined company is expected to serve more than 200,000 clients in 170 countries and have a market share among the top five firms globally in various print segments.
Xerox expects the deal to immediately aid profit and deliver more than $200 million in annual cost savings by helping reduce marketing and real estate expenses, among others.
"That money can be reinvested for the future. Xerox has set themselves up for the future," said Zeus Kerravala, principal analyst at ZK Research.
In 2020, Xerox had made a $35 billion hostile bid for HP before the COVID-19 pandemic hampered its plans. Its market value has since shrunk to about $1 billion from around $8 billion that year.
Xerox expects to finance the Lexmark deal, likely to close in the second half of 2025, through cash on hand and debt. To help with the financing, it is reducing annual dividend to 50 cents per share from $1.
The company said it does not expect any regulatory challenges for the deal, which would need approvals from countries, including China.