By Mayumi Negishi
TOKYO -- When Fujifilm Holdings Corp. first started a joint venture in photocopiers with Xerox Corp. more than 55 years ago, the Japanese company was in the shadow of its famous U.S. partner. Now, the positions are reversed: Fujifilm has reinvented itself after the fall of film and is in good health, while a decline in office printing has left Xerox languishing.
That is the backdrop for talks between the two companies. The Wall Street Journal reported Fujifilm is discussing possible deals that could include a change of control at Xerox.
The idea animating the discussions, according to people familiar with the matter, is that their existing partnership could help smooth an integration that has the potential to yield major cost savings. Xerox investors cheered the possibility Thursday morning, pushing the stock up about 7% before the market officially opened.
Fujifilm has been an active deal maker for years, and it said in August it planned to spend more than $4 billion over the next three years for acquisitions.
Once known mainly for photographic film and its global battle against Eastman Kodak Co. for consumer sales, Fujifilm today makes most of its revenue of more than $20 billion annually from products other than the one in the company's name. It has branched out into medical equipment such as mammography machines as well as cosmetics and electronic materials.
Even in photography, it focuses not on film but on hardware such as high-end digital mirrorless cameras and its analog Instax instant camera, popular at weddings and birthday parties.
Its printer and copier business, though facing long-term decline, continues to generate significant profit.
Fujifilm's alliance with Xerox, called Fuji Xerox, sells the machines throughout the Asia-Pacific region. Originally a 50-50 joint venture when started in 1962, it is now 75%-owned by Fujifilm.
Fujifilm's documents division, which includes printers and copiers made by Fuji Xerox, made up 45% of the company's sales and almost 40% of its operating profit in the six months ended September.
Any major deal with Xerox, an almost 112-year-old pillar of American technology, could bring prestige to Fujifilm's chief executive, Shigetaka Komori. The 78-year-old is one of Japan's longest-serving CEOs and a golf partner of Japanese Prime Minister Shinzo Abe.
Carl Icahn, Xerox's biggest shareholder with a 9.7% stake, wrote in an open letter to shareholders last month that Xerox needed new leadership because he said it was slow to introduce new products and increase revenue.
Analysts said a deeper alliance could bring dividends in the copier business. Given the low prospects for growth, further cooperation between the printer and copier businesses of Fujifilm and Xerox could cut costs and keep profits even with falling revenue, they said.
HP Inc.'s $1.05 billion acquisition of Samsung Electronics' printer business in November showed how the $55 billion photocopier industry is coming under pressure to cut costs and adapt to changing office needs.
A deal could help Fujifilm chase the emerging market in commercial digital printing. Manufacturers are starting to shift away from offset printing for product labels and packaging.
Fujifilm as well as its rivals Ricoh Co., Canon Inc., and Konica Minolta Inc. are fighting to catch up to Hewlett-Packard's fast-growing HP Indigo Division, which controls more than half the digital production of labels for high-volume products such as sodas and bar codes.
Still, any move by Fujifilm to double down on printing could expose it to risks in a declining market. The company said last year that pressures to inflate earnings led to years of accounting irregularities at Fuji Xerox branches in Australia and New Zealand. That caused a nearly 30% fall in profit at Fujifilm's documents division in the six months ended September 2017.
The accounting scandal led Fujifilm executives to say they would keep closer tabs on the joint venture.