Will Lexmark Buyout Be Followed By Its Software Unit Sale?

According to Bloomberg, the Chinese consortium led by Apex Technology Co., Ltd. (Apex) and PAG Asia Capital (PAG) that entered into a deal to acquire Lexmark International Inc. (NYSE:LXK) is considering the sale of the company’s software unit to an undisclosed buyer.

The source also revealed that the sale of the software unit could raise around $1 billion. Interestingly, no official announcement has been made yet and chances of one happening in the near term are minimal. Apex and PAG Asia too refused to reveal further details.

In April this year, Lexmark agreed to be acquired by the Chinese consortium. Legend Capital Management Co., Ltd. (Legend Capital) was also one of the buyers. Per the agreement, the consortium will acquire Lexmark for $3.6 billion or $40.50 per share in cash.

The agreement, unanimously approved by the board of the company and subject to regulatory and customary closing conditions, is expected to close in the second half of 2016.

The Goldman Sachs Group, Inc. (NYSE:GS) served as the exclusive financial advisor to Lexmark, while Wachtell, Lipton, Rosen & Katz constituted its legal counsel.

According to Lexmark, the integration is fully aligned with the company’s mission of restoring growth and opportunity, and addressing customers’ needs while also providing new prospects for employees. The transaction is expected to accelerate growth strategies for Lexmark’s hardware, software and managed print services solution by expanding the business in the Asia Pacific region.

Bottom Line

Lexmark’s second-quarter results were not very encouraging given the earnings miss. Also, both earnings and revenues decreased on a year-over-year basis primarily due to a strong U.S. dollar, a decline in non-MPS revenues, and the ongoing exit of the company from the Inkjet business.

In our opinion, the deal will be beneficial for Lexmark as it has been struggling amid changing industry dynamics.

Competition from players like Canon Inc. (NYSE:CAJ) , Xerox Corp (NYSE:XRX). and HP Inc. (NYSE:HPQ) are additional concerns.

Currently, Lexmark has a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).

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