Partners Seen Gaining In Lexmark Sale

Printer manufacturer Lexmark International has been acquired for $3.6 billion in cash by a group of investors led by Chinese-based inkjet and laser hardware manufacturer Apex Technology.

The deal follows a strategic alternatives review process that resulted in a $65 million restructuring of Lexmark’s Imaging Solutions and Services division and the elimination of 550 jobs.

The merger is expected to close during the second half of 2016, pending other closing conditions as well as the approval of Lexmark shareholders and regulatory authorities in the U.S., China and other foreign jurisdictions, according to a statement from Lexmark.

[RELATED: Lexmark To Lay Off 143 Employees At Headquarters]

The announcement also comes a month after the company announced the layoffs of 143 employees at its Lexington, Ky., headquarters, part of a plan announced last year to shed more than 1,000 from its payroll.

One partner applauded the move.

"This makes total sense," said Bill Loiacano, CEO of a Lexmark partner, Freeland, Mich,-based SPI Innovations. He called the sale part of a trend that hardware manufacturers such as Intel and HP have been part of, trying to increase value with a sale or split.

Loiacano said "the writing has been on the wall" with Lexmark for more than a year and the time has come for Lexmark to make a decision. As far as channel partners are concerned, the deal could be a turning point for Lexmark.

Loiacano said partners could stand to gain if Apex focuses on investing in research and development to improve the value of Lexmark’s printers with better workflow hardware and software application development.

However, he said, if the Chinese manufacturer is just looking to add another hardware component and not invest to improve the product, he said he expects Lexmark will "suffer a slow death."

"This is going to be a chaotic period of time for Lexmark," said Loiacano, "But, at the end of the day, if Apex delivers ingenuity [on] the hardware platform, it will be better for Lexmark partners and end clients … but it's going to take time to get there"

Ken Stewart, a printer industry analyst, and principal consultant with ChangeForge LLC, based in Greenville, S.C., said he expects this sale will end up igniting a price war in the printer space.

"Chinese companies are known for driving efficiency," he said, adding that he believes Apex will streamline Lexmark's supply chain and manufacturing processes to make the company more competitive on price. That, he added, will fuel a battle with other printer manufacturers to capture market share with low prices.

Stewart said the price race has been underway for some time with the development of inkjet options for business customers from such companies as Brother and Epson -- which allow customers to reduce expenses by not buying toner -- and matching prices from printer manufacturing giant HP Inc.

"If you are going to start a price war, you are going to need deep pockets, and I think (Apex) has that," he said.

In the short term, Stewart said, the race will benefit partners with better price points, but after a while, the channel will begin to compete on lower pricing and the value-added hardware will be difficult to sell at a higher price.

According to the statement from Lexmark, the company’s board of directors has unanimously approved the acquisition, which will provide a 30 percent premium above Lexmark's closing stock price of last Oct. 21 ($31.06, according to Yahoo Finance), the day before news of Lexmark's strategic alternatives process became public.

The group of buyers also includes Chinese private equity firms PAG Capital and Legend Capital. Legend is also a shareholder in Zhuhai Seine Technology, a Chinese-based company that owns 70 percent of Apex’s voting shares. The group will finance the purchase of Lexmark via equity contributions from its members, as well as debt financing, according to the Lexmark statement.

The merger will take Lexmark private. Its stock, which closed Tuesday at $34.66 a share on the New York Stock Exchange, opened Wednesday’s trading session at $38.12, up nearly 10 percent. It stayed close to that level with about two hours left in the session.

Paul Rooke, Lexmark’s chairman and CEO is expected to continue to lead the company, the company’s statement read. No other major changes are planned, the statement indicated.

Lexmark declined further comment.

In its 2015 fiscal year, Lexmark reported a drop in revenue of 4 percent, from $3.71 billion in 2014 to $3.55 billion. It also reported net debt of $903 million after it had acquired software developer Kofax for $1 billion in March 2015.