IBM plans to eventually offload its enterprise printing systems division to Japanese printer and copier vendor Ricoh Co. The two companies announced Thursday that they're forming a joint venture company based on the IBM unit which will gradually become a fully-owned Ricoh subsidiary.
Initially, Ricoh will acquire 51 percent of the joint venture, which will be known as the InfoPrint Solutions Co. Over the next three years, the Japanese company will gradually acquire the other 49 percent of the printing business, so eventually it will own the entire operation.
The first part of the deal, forming the joint venture, is due to be completed in the second quarter of this year, subject to regulatory conditions.
At that time, Ricoh will pay IBM $725 million in cash both for the initial 51 percent of the joint venture and as a prepayment for the other 49 percent. The final consideration for the transaction will be determined once the three-year period ends based on the profits and losses IBM and Ricoh sustain in running the joint venture.
In 2006, IBM's printing business generated around $1 billion in revenue, according to the vendor. The division encompasses workgroup laser and multifunction printers, which feature scanning, copying and faxing capabilities as well as thermal industrial printers and continuous form production printers. IBM also offers some printers for SMBs (small to midsize businesses) under its Infoprint Express brand.
The transfer of the IBM Printing Systems Division to Ricoh will allow IBM to focus on its core businesses and clients, IBM Chairman Sam Palmisano said in a statement. He stressed the move is an extension of an existing 20-year relationship between IBM and Ricoh. The Japanese vendor has the necessary investment to grow the printing operation, according to Palmisano.
For its part, Ricoh is looking to expand its printing business and make the InfoPrint Solutions Co. into a core business.
"This signals the beginning of a new stage in our strategy for global growth," said Ricoh Chief Executive Officer and President Masamitsu Sakurai during a Thursday conference call. The company is keen to expand by penetrating the production printing market, he added. "In 2004, we took the first major step and acquired Hitachi's printing division," Sakurai said.
Over the last three years, it became more and more obvious to IBM that the vendor needed to do something about its printing business since the unit's growth was slowing down.
"The rate of change slowed to a point where we realized we would have difficulty trying to nurture and grow it on its own," said Nick Donofrio, IBM's executive vice president, innovation and technology. "It's never an easy decision. You realize when it's time to let old things go and have them realize value in new places," he added.
Donofrio wouldn't comment on whether there were other IBM business units in a similar position of slowing growth and thus ripe candidates for offloading.
The joint venture should start with a staff of about 1,200 employees and more than 1,000 additional IBM printer maintenance experts may also come onboard in the future. IBM has committed to provide maintenance services to customers of the joint venture for the first year of operation and to supply IT services to the new company for a maximum of five years. IBM expects to realize $150 million in annual services revenue from the new company for the five-year period.
The InfoPrint Solutions Co. will occupy the same headquarters as IBM's Printing Systems Division in Boulder, Colorado. Heading up the new venture will be Tony Romero, the former general manager of the IBM unit. The new company can use IBM's InfoPrint brand and the IBM logo for at least five years and will become a global IBM partner for printers.
As IBM has been busy buying companies, acquiring more than 60 firms since 2002 for around $16 billion, the vendor has also offloaded noncore businesses including its hard-disk drive and display operations and the $1.75 billion sale of its PC business to Chinese vendor Lenovo Group Ltd. in 2005.
IBM spun off its lower-end printing business in 1991 with the founding of Lexmark, which went on to become a separate publicly traded company in 1995.