Xerox (XRX, Financial) is advancing its Reinvention turnaround plan by actively seeking mergers and acquisitions to fuel long-term growth. Recently, XRX announced its $400 million acquisition of IT services firm Itsavvy. Today, it revealed a much larger transaction: the $1.5 billion acquisition of Lexmark International.

As part of this deal, XRX will reduce its annual dividend by 50%, offering investors $0.50 per share, resulting in a 6.0% annual yield based on Friday's closing price, compared to the previous 12.0% yield. This is the first dividend adjustment since 2017. Despite the reduction, investors are optimistic about the Lexmark acquisition.

• Lexmark International, a long-time partner of XRX, produces multiuse printers for businesses. The merger is expected to generate over $200 million in cost synergies within two years, with the transaction set to close in the first half of 2025.
• The acquisition strengthens XRX's position in the A4 color printer market and expands its reach in the APAC region. The A4 market is lucrative due to high-margin supplies like ink cartridges, and XRX expects the deal to enhance its EPS and free cash flow immediately.
• Lexmark, with over half its revenue from supplies, has maintained stable sales growth, increasing revenue by 4% over the past year despite economic challenges. Conversely, XRX has faced revenue declines year-over-year since the second quarter of 2023.
• Combined, XRX and Lexmark generated over $8 billion in trailing twelve-month revenue. Including anticipated synergies, the new entity would have achieved adjusted operating margins of 8.4%, an improvement over XRX's recent 5.2%. XRX forecasts double-digit adjusted operating margins in the long term.

XRX shares have plummeted by over 50% this year due to various challenges, including major reorganizations and product disruptions. However, the Lexmark acquisition highlights XRX's commitment to its reinvention strategy, aiming for sustainable and profitable growth. Management has expressed confidence that as past setbacks are resolved, sales productivity will rise, supported by strategic M&A to counteract market declines.