Xerox, ACS close $6.4B merger deal

Combined firm looking to wed Xerox tech expertise with ACS business processes

Xerox Corp.'s $6.4 billion acquisition of Affiliated Computer Services Inc., approved by the shareholders of both companies on Friday, creates a combined company of nearly 130,000 employees that plans to rely heavily on technology innovation.

ACS is uniting with a company that spends $800 million to $900 million of its $18 billion in annual revenue on its research operations, which include the famed Palo Alto Research Center Inc., or PARC.

While the merger of Xerox and ACS will result in staff cuts, mostly in overlapping corporate reductions, officials at both companies insist that the intent of the deal isn't to boost profits by reducing headcount, but rather to improve performance through cross-selling and marrying ACS's business process expertise with Xerox's technology and services.

The message the combined operation is sending to customers is this: "We're not changing your team," said ACS CEO Lynn Blodgett. Blodgett will continue to run ACS as a division of Xerox.

Blodgett said a key benefit of the merger for ACS is access to Xerox's research, which provides "a tremendous innovation resource."

For example, Blodgett said ACS could use Xerox's technology to image license plates instead of relying transponders on the E-Z Pass automatic toll collection systems it operates for the state of New York.

On the business side, new managed desktop services may emerge from the combined company, said Jim Firestone, president of corporate operations at Xerox. Combining the ACS "typically managed desktop" with Xerox's managed print services "is a very compelling proposition," said Firestone.

Xerox has developed document technology that enables companies to use the information locked in unstructured data, which ACS could use "in health care and government services and virtually every area of business process management," said Firestone.

Craig LeClair, an analyst at Forrester Research Inc., said that the addition of ACS provides Xerox with a "much more complete business process." Xerox will be able offer outsourcing for the entire HR process, for instance, and not just the front end, said LeClair.

Officials said that about 20% of the combined company's large installed base of customers use products and services from both vendors, and that gives the newly merged company ample cross-selling opportunities.

About 90% of ACS's business is in North America, while Xerox generates half of its revenue from outside the U.S. Thus the merger provides ACS with an opportunity to expand outside the U.S., according to officials at both companies. "This give [ACS] credibility globally that we don't have now," said Blodgett.

Dallas-based ACS in recent years has moved to better compete with offshore competitors by adding to its overseas labor force while cutting its U.S. headcount. In June 2008, ACS had 65,000 employees, including approximately 45,000 employed domestically. A year later, ACS had 74,000 employees overall, with 42,000 in the U.S.

ACS has said it boosted its overseas operations to stay competitive with offshore outsourcers.

LeClair said ACS's strategy of boosting its offshore headcount is common in the outsourcing industry.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov, send e-mail to pthibodeau@computerworld.com or subscribe to Patrick's RSS feed .

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