September 30th, 2009

Xerox’s Ursula Burns goes shopping! Spends almost $4 billion on ACS.

On September 28th, Xerox announced its impending purchase of ACS. Xerox CEO Ursula Burns hopes to get into the big leagues as far as Business Process Outsourcing (BPO) is concerned. The big focus of course here is the synergies that Xerox keeps talking about: Xerox Material Synergies Click to enlarge


Expected to catapult Xerox’s revenues to $16 billion, the deal could potentially mean the end of the road for more than a few ACS employees. Reviewing the analyst call transcript(pg 9) it appears that for ACS CEO, Lynn Blodget, the biggest synergy could be in terms of cost efficiency that arises out of using Xerox’s automation processes and image based solutions. These solutions can eliminate the need for “human beings” (Lynn’s words) which can translate into huge labor cost savings for ACS . ACS being a BPO, labor costs constitute the biggest chunk of their costs.


Speaking of labor costs, according to ACS CEO Lynn Blodgett’s employment agreement, in case of his removal from the positon of Chief Executive Officer, he gets a severance lumpsum amount equal to three times the sum of (i) his annual base salary, plus (ii) an amount equal to his discretionary bonus for the immediately preceding fiscal year. Further, any unvested stock options or other equity-based awards granted to Mr. Lynn Blodgett under the 1997 Stock Plan, the 2007 Equity Plan or any omnibus stock incentive or award plans adopted by the Company that are outstanding as of the date of such termination will become fully vested and non-forfeitable. Mr. Blodgett is also entitled to receive the excise tax gross-up benefit.


According to the ACS proxy, the change of control payments to Mr Lynn Blodget assuming a change of control on June 2008 would be $9.03 million.


Alongwith all the other labor related cleanups that the combined entity will have to do, hopefully Xerox can also be persuaded to address it’s Board deficiencies as well.


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