Xerox acquires ACS for $6.4 billion

Xerox Corp. is acquiring Affiliated Computer Services Inc., creating a $22 billion global enterprise for document technology and business process management.

Xerox will pay $6.4 billion in cash and stock at $63.11 per share for the Dallas-based diversified business process outsourcing firm. The transaction is expected to close in the first quarter of 2010.

“At that time ACS will become Xerox’s core BPO business. It will initially be known as ACS, a Xerox company,” said Ursula Burns, CEO of Xerox. The subsidiary will continue to be led by Lynn Blodgett, president and CEO of ACS.

This acquisition “is a game-changing initiative for sure,” Burns said. The acquisition will transform Xerox into a leading global enterprise for document and business process management and will accelerate its growth in an expanding market.

“By combining Xerox’s strengths in document technology with ACS’s expertise in managing and automating work processes, we’re creating a new class of solution provider,” she added.

The largest purchase in Xerox’s history also is expected to effectively triple the revenue Xerox generates in services from $3.5 billion in 2008 to $10 billion in 2010, Burns said.

The merger will allow ACS to extend its services globally by leveraging the Xerox brand, she said.

Asked whether Xerox was prompted to acquire ACS because of the health care opportunities available in the federal stimulus package, Burns said, “Clearly, ACS’s strength in the health care sector helped us with this [decision], but this clearly was not the only reason -- or even the primary reason -- why we went after ACS.”

She said ACS’ strong management, growth rate, financial acumen and accretion to Xerox’s business, and the extension of Xerox’s offerings globally were the main motivators for the acquisition.

Blodgett said about 40 percent of ACS revenues come from state, local and federal government clients, especially in Medicaid health care. About a year ago, ACS made a renewed push into the federal market after operating for five years under a non-compete agreement with Lockheed Martin Corp. The two companies had swapped their state and local and federal businesses in 2003.

Xerox’ technology will make administrative processes – which account for only 2 percent of health care spending – more efficient and cheaper, the company said. The challenge in health care right now, Blodgett said, “is trying to focus on the 98 percent portion of the spend, and this is the provisioning of health care.”

Xerox’s technologies will help ACS’ medical claims business handle the millions of pages of unstructured health care documents, data and images that can lead to better analyses and more outcome-based health care solutions, he said. “That’s where people are trying to go.”

The Xerox-ASC deal is the second major merger announced in a week. Last Monday, Dell Corp. unveiled plans to buy Perot Systems Inc. for approximately $3.9 billion.

ACS, of Dallas, ranks No. 75 on Washington Technology’s 2009 Top 100 list of the largest federal government prime contractors.