TOKYO -- Japan's Fujifilm Holdings announced a plan on Wednesday to take a controlling stake in its longtime U.S. partner Xerox, creating a copier maker similar in scale to industry leader HP.
Under the deal, Xerox will acquire Fuji Xerox, the partners' co-owned subsidiary. Fujifilm will then purchase a 50.1% stake in Xerox, and the U.S. company's name will be changed to Fuji Xerox.
The acquisition will give the Japanese company a leading role in the office equipment business for the first time. It will also give Fujifilm access to Xerox's famed Palo Alto Research Center in Silicon Valley.
The joint venture will borrow some 670 billion yen ($6.16 billion) to buy the 75% stake currently held by Fujifilm. That will allow Fuji Xerox become a full subsidiary of New York-listed Xerox, which currently owns the other 25%.
Fujifilm will then buy 50.1% of Xerox through a private placement of new shares for roughly 670 billion yen, so the ownership change will involve no outlay of cash. The combined company will be called Fuji Xerox.
By taking control of Xerox, a tech pioneer that once helped it grow, Fujifilm Holdings will have greater freedom to run its office equipment business globally. But it confronts the same shift away from paper that eroded its U.S. partner's earnings.
The deal will produce an example of "true integrated management that will enable global expansion," Fujifilm Chairman and CEO Shigetaka Komori told reporters Wednesday as the new ownership structure was announced.
Xerox was founded in 1906 while Fujifilm dates back to 1934. In its heyday, the U.S. company provided technical assistance to its Japanese counterpart. The two companies founded office equipment maker Fuji Xerox in 1962 as a 50-50 joint venture. When Xerox fell on hard times, Fujifilm lifted its stake in Fuji Xerox to 75% in 2001. But because Xerox controls key intellectual property in office machines, the U.S. company has held an outsize influence on the venture despite the minority stake.
The companies previously operated in separate domains. Fuji Xerox handled the Asia-Pacific business while Xerox took charge of Western and other markets. Those demarcations will now disappear. The revamped Xerox is expected to surpass rivals Canon, Ricoh and others in office machine sales volume.
But therein lies a risk. Offices in developed markets are cutting down on paper documents, which threatens demand for printers. Fujifilm, having watched the market for photographic film fade away, diversified to pharmaceuticals and other industries far removed from its original specialty. But taking control of Xerox will sharply elevate the Japanese company's exposure to office equipment.
Copiers, multifunction machines and other printing devices accounted for two-thirds of Fujifilm's and Xerox's combined sales in fiscal 2016. Once in control, Fujifilm will need to find ways to expand Fuji Xerox's other business lines.
Fujifilm can attest to the difficulty of diversification. Its pharmaceutical business is still struggling to be profitable since the 2008 acquisition of Japan-based Toyama Chemical, which launched Fujifilm into the drug industry.
Fujifilm said it expects the Xerox transaction to lead to cost savings. It announced a restructuring of the document technology unit, including 10,000 job cuts in Japan and overseas.
The 78-year-old Komori had told associates that he planned to stay on as CEO for another two to three years. But now Fujifilm's chief thinks the Xerox purchase may extend that timeline.
"I have to be the cornerstone of the integration," he said.
