Moody's has announced a potential upgrade of Xerox's (XRX, Financial) credit rating following its agreement to acquire Lexmark International, a laser printer manufacturer. This strategic move is expected to improve Xerox's debt load and cash flow metrics. The acquisition is anticipated to reduce Xerox's debt-to-earnings ratio from 5.4 to below 5.2, even without cost-cutting measures, based on adjusted data through September 2024.
Moody's will evaluate several factors before deciding on a rating upgrade, including the merged company's expected revenue trends, cost reduction potential, and plans for managing upcoming debt maturities. Currently, Xerox's senior unsecured bonds hold a B3 rating, which is six levels below investment grade. As of September 30, Xerox's short-term and long-term debt stood at approximately $3.27 billion.
The $1.5 billion acquisition deal, announced by Xerox, involves purchasing Lexmark from an Asian investor consortium. As part of the acquisition, Xerox plans to reduce its annual dividend from $1 to $0.50 per share. The transaction is expected to close in the second half of 2025, pending regulatory approval from the US and China.
