Fujifilm Demands More Than $1B From Xerox For Scrapped Deal

Reportedly, FUJIFILM Holdings (OTC:FUJIY) has sued Xerox (NYSE:XRX) , demanding more than $1 billion for scrapping the $6.1 billion merger deal announced in January this year.

Fujifilm and Xerox had agreed to combine the latter into the existing joint venture – Fuji Xerox – which would have given the former a majority stake in the new entity. Fujifilm currently owns 75% stake in the 56-year old joint venture that operates in Asia with Xerox.

Xerox’s board called off the deal after activist investors Carl Icahn and Darwin Deason, who together own about 15% stake, stated that the deal undervalued the company. Among other things, the company also cited unresolved accounting issues with Fujifilm as a reason to end the merger.

Notably, Fujifilm seeks damages for breach of contract, breach of implied covenant of good faith and fair dealing, and a finding that Fujifilm is entitled to a $183 million termination fee, per a Bloomberg report.

Scrapped Deal to Hurt Fujifilm

The Fuji-Xerox joint venture contributes revenues to the Document Solutions business of Fujifilm. However, the segment has witnessed declining revenues on lower demand for the office printer business.

Apart from providing support to the Document Solutions business, the acquisition would have increased Fujifilm’s presence in 3D smart printers market. Notably, Fuji Xerox generates 53% of revenues from Japan alone. According to a IDC Japan report, about 85.7% of the companies in Japan are using 3D printers to develop prototypes.

Moreover, Fujifilm had estimated the deal to deliver at least $1.7 billion of cost savings and $1 billion of new revenues annually. However, the company lost these synergies after Xerox decided to walk out.

The termination of the deal has also hurt Fujifilm’s share price. On a year-to-date basis, the stock has lost 5% compared with industry’s decline of 1.5%.

Portfolio Strength to Help Fujifilm’s Rebound

We expect Fujifilm’s expanding portfolio based on acquisitions to help the stock rebound in the rest of 2018.

The buyouts of Irvine Scientific Sales (ISUS) and IS JAPAN (ISJ), both subsidiaries of JXTG Holdings, to expand Fujifilm’s product portfolio in the cell culture media market, which is projected to grow 10% annually.

Moreover, robust performance of the Imaging Solutions and Healthcare & Material Solutions is expected to be the primary growth driver going forward. Stronger medical systems and electronic materials businesses are expected to drive Information Solutions’ growth.

Zacks Rank & Stocks to Consider

Currently, Fujifilm has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Micron Technology, Inc. (NASDAQ:MU) , sporting a Zacks Rank #1 (Strong Buy) and Ricoh Co. (OTC:RICOY) , holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Micron and Ricoh is currently projected to be at 10% and 1%, respectively.

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