Lexmark Surges on Plans to Cut Jobs, Explore Inkjet Sale

Lexmark International Inc. (LXK), a U.S.
printer maker, rose the most in more than a year after
announcing plans to eliminate about 13 percent of its workforce
and explore a sale of its inkjet technology.

Lexmark gained 14 percent to $21.62 at the close in New
York, for the biggest increase since July 2011. The shares have
dropped 35 percent this year.

Demand for Lexmark’s printers has slowed as more consumers
choose to view documents on mobile devices, forcing the company
to shift its focus to higher-end corporate business and
services. Selling assets and laying off workers may make Lexmark
an attractive takeover target for companies such as Xerox Corp. (XRX)
or Dell Inc. (DELL), said Federico De Silva, an analyst at Gartner Inc.

“It looks like they’re packaging themselves for some sort
of acquisition,” De Silva said in an interview. “They keep
getting smaller and smaller.”

Purchasing Lexmark would give Xerox access to more
customers it transitions to services and high-end printing, De
Silva said. Dell already sources laser units from Lexmark,
making it another potential buyer, he said.

David Frink, a spokesman for Round Rock, Texas-based Dell,
said the company doesn’t comment on speculation. Kenneth
Ericson, a spokesman for Norwalk, Connecticut-based Xerox, and
Jerry Grasso, a Lexmark spokesman, both declined to comment.

Xerox is a less likely bidder because it already is strong
in printing and is trying to expand in other areas, said Keith Kmetz, an analyst at Framingham, Massachusetts-based researcher
IDC.

Manufacturing Jobs

Lexmark will close inkjet manufacturing facilities in Cebu,
Phillipines, by the end of 2015, the Lexington, Kentucky-based
company said in a statement today. Lexmark will cut 1,700 jobs,
including 1,100 manufacturing positions. Reductions will also
occur in research and development, supply chain and support
functions. The company had approximately 13,300 employees as of
Dec. 31, according to a regulatory filing.

Restructuring will cost Lexmark $160 million, with $110
million of that this year, the company said. Cash flow will be
reduced by $75 million, with a $40 million impact in 2012.The
reorganization will generate annual savings of $95 million
beginning in 2015.

“Today’s announcement represents difficult decisions,
which are necessary to drive improved profitability,” Lexmark
Chief Executive Officer Paul Rooke said in the statement. “Our
investments are focused on higher value imaging and software
solutions.”

Forecast Cuts

Lexmark, along with printer makers Canon Inc. (7751) and Xerox,
cut earnings forecasts this year, citing weaker office equipment
sales in Europe. Rooke said last month that the company plans to
expand its management services and software business to help
overcome the economic slump in Europe.

Lexmark’s operating income margin excluding some items will
be 11 percent to 13 percent over the long term, the company said
today on a conference call. Last month, the company reported a
second-quarter margin of 10.1 percent, down from 14.2 percent in
the same period a year earlier.

Separately, Lexmark said today it will buy back an
additional $100 million in its own shares, and that the board
has authorized a potential $251 million in future repurchases.

To contact the reporters on this story:
Amy Thomson in London at
athomson6@bloomberg.net;
Sarah Frier in New York at
sfrier1@bloomberg.net

To contact the editors responsible for this story:
Kenneth Wong at
kwong11@bloomberg.net;
Tom Giles at
tgiles5@bloomberg.net

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