Lexmark and Lenovo: A New Merger or Something Else?

The tech industry is buzzing with the news that PC company Lenovo may be making a move to acquire printer manufacturer, Lexmark. However, new reports have emerged that a variety of buyers will be working to buy out Lexmark instead.

Lexmark has been making headlines recently with talk of layoffs. Even though the printer company released seven new models at the beginning of the year, 1000 jobs are set to be lost over the course of the new few months.

Lenovo is a Chinese-based PC company that started manufacturing their products in the United States in 2012 at their North Carolina operations center. The company also garnered a reputation in recent years for acquiring struggling tech companies. In 2014, they bought Motorola Mobility from Google for just under $3 billion.

Insiders say the move makes sense, as Lenovo has been expanding its server capabilities, particularly in the Australian market. Not only would this be a boost for both companies, especially Lexmark, but would also give Lenovo a step up against competitors in the space.

But new reports show that the Lexmark deal will instead go to a variety of buyers for a price of over $3 billion. One shareholder mentioned is Legend Capital, a business with a 30.6% stake in Lenovo. Insiders say the deal was moved to the consortium so Lenovo could focus on the smartphone side of the business. Moving forward with the printer giant on their own was considered too big a risk at the time. Recent reports indicate that Lenovo has been disappointed with the prosperity of the sale, saying it “did not meet expectations.”

The deal has not yet been finalized, but executives at Lexmark say their base of operations will remain in the United States. The deal will not be concluded until the third or fourth quarter of 2016 after regulation checks have been completed. Other buyers are said to include Apex Technology and PAG Asia Capital. Apex is a leading producer of printer ink, a natural fit to partner with Lexmark. PAG Asia is a private equity firm managing over $15 billion in capital each year.

Lexmark has been working with Goldman Sachs since last year. They hired the financial giant to explore strategy related to growth. Part of the proposal was a sale to influential buyers, a move that now seems to have come to fruition. Goldman Sachs will continue to advise the company throughout the process of the transaction, with Wachtell, Lipton, Rosen & Katz providing any legal advice.

This transaction comes after Lexmark failed to address a reoccurring problem for many technology industry businesses – keeping up with the rate of advancements. Each year technology continues to grow, and hardware companies feel the pressure to adapt quickly. Regardless, the company has continued to be a dominating force in its sector and is usually on the other side of the acquisition fence. Lexmark has acquired many companies over the years, including:

  • Search software ISYS in March 2012
  • Content and business process management software Saperion AG in 2013
  • Financial process automation company ReadSoft in 2014
  • Process application provider Kofax in 2015

Lenovo’s status in this new buy-out will most likely include a direct OEM pact to sell Lexmark branded printers under the Lenovo name. While this is not a direct acquisition, it will offer a new source of business for the PC giant.

Lexmark also owns Imaging Solutions and Services, and Enterprise Software, which are said to be unaffected by the transition. The Board will not be hosting their regularly quarterly conference call until the process is complete. They have also stressed to business partners and shareholders that this takeover should not affect continue operations and will only “strengthen the business.” They are also urging all stakeholders to read all filings with the Securities and Exchange Commission (SEC), which can be obtained free of charge.

We will continue to monitor the progress of this Consortium.

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