Xerox at a crossroads as top investors push for big changes

Sarah Taddeo Sean Lahman
Democrat and Chronicle
Xerox plans to move out of downtown Rochester and relocate to its Webster campus.

By all accounts, 2018 is going to be a year of big changes for Xerox.

On Friday, the company announced it was vacating its downtown office space at Xerox Square. The tower has loomed over Rochester for 50 years, holding a prominent place in the city's skyline and serving as a visible symbol of the company's outsized impact on the local economy.

But Xerox's exit from downtown Rochester portends more and bigger changes.

A pair of activist shareholders is seeking to shake up the status quo at Xerox, and their actions have raised questions about the future of the company and how its next moves could affect its footprint in Rochester. 

Carl Icahn, the company's largest shareholder, wants to oust Xerox CEO Jeff Jacobson and replace the current board of directors with his own team to move the company in a different direction.

What impact such a change might have is unclear. Right now, speculation outweighs clear answers by a wide margin. The not-knowing is a source of tension for many local workers and their families.

More:Xerox to leave downtown offices, relocate employees to Webster campus

"When there are uncertainties it creates nervousness," said Robert Duffy, president of the Greater Rochester Chamber of Commerce. "Whatever decision the investors and board make, there are thousands of Rochester families who will be impacted."

A shareholder meeting later this year will likely be a major turning point for the Connecticut-based document technology company. A vote on candidates for the board will determine whether Icahn can wrest control of the company away from its current leadership.

While there are no guarantees, Icahn, the insurgent in this scenario, has a decent chance of rearranging the current board, said Brighton Securities Chairman George Conboy. 

“Xerox has been a vaporizer of shareholder value," said Conboy. "As a Xerox shareholder, I would be favorably inclined to hand the keys to somebody who might have a better chance of making me some money.”

In response to Icahn's pressure, Xerox has entered into talks with longtime partner Fujifilm about expanding their relationship. The Wall Street Journal reported that Xerox, under pressure to find new sources for growth as demand for its printer and copier products shrinks, was discussing an array of possible agreements with the Japanese camera maker that could include a change in control of Xerox.

Icahn and another major investor, Darwin Deason, both came out against that move. Icahn said the current leadership shouldn't be allowed to negotiate a transaction. Deason, who sold Affiliated Computer Services to Xerox in 2010 for $6.4 billion, argued that the company should seek to extricate itself from the joint venture altogether.

Xerox responded to the two shareholders' concerns by saying the company was "comfortable with our disclosure and confident with the strategic direction in which the company is heading," and reiterated its goal of creating value for shareholders. 

Local company spokespeople have not commented on details surrounding the joint venture with Fujifilm. 

The fight over control of the Xerox will have profound implications for the company's future. It could send the company on a trajectory toward growth and profitability, or it could lead to significant contractions or even a sale of the company.  One way or another, 2018 is likely to bring major changes to Xerox.

More:Xerox to leave downtown offices, relocate employees to Webster campus

Icahn Pressure

Carl Icahn

In an open letter to shareholders last month, Icahn said the company "desperately needs new leadership" and that the current CEO was incapable of innovation that could provide growth. He also warned that the cost-cutting strategies alone would not change the "alarming revenue trajectory." 

Icahn has a history of shaking up underperforming companies.

In recent years, Ichan has taken major shares in a number of technology companies.  He often uses his stake as leverage to advocate for changes, such as when he pushed Ebay to spin PayPal off into a separate company.  

But there have been failures as well.  His investment in Blockbuster was a flop, and while Icahn profited from his takeover of Trans World Airlines, he did so by selling off their assets and steering it into into bankruptcy.

"Carl Icahn always does what he thinks is good for him," Conboy said.  "He keeps management from being complacent, but the outcomes aren't necessarily great for everyone else."

Over the last decade, Xerox's stock has generally been on the decline — although they've been up for the last year or so — and that gives shareholders reason to want to know what’s going on behind the scenes, said Conboy.

What’s more, it may give them more cause to listen to Icahn this time around — after all, his push to spin off Conduent Inc. in 2017 resulted in rising stocks for both Conduent and Xerox, at least in the short term.

"Whether Icahn's instinct to split the company made sense in the first place, I'll leave that to others," said Kent Gardner, chief economist for the Center for Governmental Research. "But for those who say it's time to fire the CEO and look for a buyer, it seems to me that it's awfully soon to declare these changes have been a failure.  It takes a long time to enact significant changes at this level."

Xerox has responded to Icahn’s claims by saying the company is on track to produce shareholder value. But if the company can’t move its top line through sales, then it’ll have to address its bottom line, which could spell job cuts for Xerox’s Rochester locations, said Conboy.

Monroe County is home to around 10 percent of the company’s global workforce, or about 3,400 people.

Why does it matter

While Xerox is no longer a giant in the Rochester economy, any major changes in the company would have a ripple effect throughout the community. 

"You better believe we ought to worry about a company with a few thousand employees," said Gardner. "It's not just the loss of payroll employment, but were Xerox to relocate or see the loss of thousands of jobs, we'd lose the purchasing power of those individuals and their families.  There would be a disproportionate impact on Webster, but a subtle ripple effect through the entire community."

Duffy says that while Xerox may not be a giant in the local economy any more, they are still a very important player and could play a major role in revitalization.

"Xerox has brought tremendous talent from all over the world here to Rochester," Duffy said. "They have gone through many changes but they've always been part of the fabric of our community."

Looking to the future 

Xerox Webster campus.

Xerox’s sprawling Phillips Road campus in Webster has been a humming economic ecosystem for the town and village throughout the years, providing jobs, customers for local establishments and a substantial portion of the tax base.

But since campus buildings or portions of those buildings are now sitting empty, municipal officials are hoping to eventually work with Xerox to revamp that space for other uses, said Webster Town Supervisor Ronald Nesbitt.

“I am energized about the fact that they have some empty buildings, and if we all put our heads together in a room, we could come up with something,” said Nesbitt.

Getting a handle on the company’s direction to help guide redevelopment ideas and dialogue can be a challenge, as Xerox is a large corporation and Webster’s economic planning doesn’t necessarily factor into the company’s decision making, said Matt Chatfield of the Webster Economic Development Alliance.

But the company's recent decision to move hundreds of employees to Webster from downtown Rochester shows a renewed commitment to the area, he said, and there's potential for fruitful collaboration between the company and local actors to bring life to some mostly vacant parcels, such as the company's west campus. 

The west campus is an 88-acre parcel across Phillips Road from the main Xerox campus that includes three buildings totaling around 440,000 square feet. The property could make a great home for another company or development, he said. 

“We see Xerox in our community as key,” said Chatfield. “We’d like them to stay. That being said, there is a lot of opportunity there on that campus and within that facility for additional growth and development."

Duffy says he hopes that Xerox's presence in Rochester remains strong — if not stronger. And he has at least one idea of how to do that.

"In terms of saving money, I would make a suggestion that they move their corporate headquarters back to Rochester," he said.

The company, which was founded in Rochester in 1906, moved its headquarters to Connecticut in 1969.

"We would welcome them back enthusiastically and help make that happen," Duffy said.

More:Xerox to leave downtown offices, relocate employees to Webster campus

More:Whatever Happened to ... the ice rink at Xerox Square

STADDEO@Gannett.com
SLAHMAN@Gannett.com

Xerox by the numbers

3,400 – Number of Xerox employees in Monroe County.

850,000 — The interior square footage of Xerox Square.

$40 million – the amount spent by Buckingham Properties to buy the tower from Xerox in 2013.

443 – The height of the Xerox Square tower in feet, making it the tallest building in Rochester.