Xerox: Worth More Dead than Alive?

In the past few months, Xerox
has resembled a busted Internet IPO. Investors have fled the
stock as if it were diseased. The 52-week range on the stock is $10-1/2 to
$43-5/16. The market cap is $7.2 billion and the current stock price is
$10-13/16.

And there is good reason for the plunge. Basically, Xerox’s performance has
been disastrous – and will continue to be so for at least the next quarter.
Even Xerox admits that things are terrible. For example, the CFO has stated
that the business model does not work.

Early this week, the company said that it would show a loss of 15 cents to
20 cents for the third quarter. Keep in mind that the company was expecting
to show profits.

Basically, Xerox is in panic mode. First of all, expect the company to
slash or eliminate its 80 cent dividend. Next, there will be layoffs.

More importantly, the company will likely sell-off divisions. This will be
a tremendous help, as the company has $17.6 billion in debt.

Interestingly enough, at its current market cap, Xerox looks like a
compelling value play. Let’s take a look at the portfolio. Xerox has a 50%
interest in the joint venture called Fuji Xerox. Last year, the company had
$7.8 billion in sales. Estimates are that Xerox’s interest could fetch $2
billion to $3 billion, if not more. Xerox also has a finance company, which
could raise perhaps as much as $4 billion. There is the inkjet printer
division, which could bring in $1 billion or more.

If Xerox can sell off its assets quickly, it will definitely be an
attractive takeover candidate. The company has strong market share and
technologies. With lower debt levels, a company like Cannon or Fuji Photo
Film could be very interested in making a bid.

And there is definitely motivation. Currently, Xerox’s management has hefty
stock positions. In fact, officers have also been engaging in open market
purchases of the stock in the past few months.

Of course, Xerox could fall further. But it is always tough to time the
bottom of the stock. Considering the unlocked values within the company,
the current stock price does look attractive.

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