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Lexmark Stock Soars Following Announcement of Its Buyout

Lexmark International Inc. LXK has agreed to be acquired by a consortium led by Apex Technology Co., Ltd. (Apex) and PAG Asia Capital (PAG). Legend Capital Management Co., Ltd. (Legend Capital) is also one of the buyers. Per the agreement, the consortium will acquire Lexmark for $3.6 billion or $40.50 per share in cash.

Financial Details

The Chinese consortium’s offer price is 17% higher than Lexmark’s closing price of $34.66 on Apr 19. The purchase price reflects a premium of more than 30% to Lexmark's “undisturbed closing stock price on Oct. 21, 2015, the date prior to the news of Lexmark's exploration of strategic alternatives becoming public.”

The agreement, unanimously approved by the board of the company and subject to regulatory and customary closing conditions, is expected to close in the second half of 2016.

Lexmark’s board of directors also declared its quarterly dividend of 36 cents per share. The new dividend will be payable on Jun 17, 2016 to shareholders on record as of Jun, 3.

The Goldman Sachs Group, Inc. GS is performing the role of exclusive financial advisor to Lexmark, while Wachtell, Lipton, Rosen & Katz constitute its legal counsel.

Potential Integration

According to Lexmark, the integration is fully aligned with the company’s mission of alleviating pain, restoring growth and opportunity, and addressing customers need while also providing new prospects for employees. The transaction is expected to meaningfully accelerate growth strategies for Lexmark’s hardware, software and managed print services solution by expanding the business in the Asia Pacific region.

According to Paul Rooke, Lexmark chairman and chief executive officer "This is an exciting transaction that Lexmark's Board of Directors believes is in the best interests of our shareholders following an exhaustive strategic alternatives review process to maximize value."

Last Words

Lexmark’s fourth-quarter results were not so encouraging as the bottom line missed the Zacks Consensus Estimate and the top line almost matched. Also, revenues decreased on a year-over-year basis, primarily due to lower Inkjet Exit revenues and the impact of foreign currency fluctuations. Also, lower revenues from imaging and software solutions impacted overall revenues during the quarter.

In our opinion, the deal would be beneficial for Lexmark as it has been struggling amid changing industry dynamics.

However, the deal may see some challenges. This is so because the takeover of U.S companies by Chinese organizations is not quite simple. In recent times, China's Unisplendour Corp Ltd failed to take a 15% stake in Western Digital Corp. WDC after CFIUS, an inter-agency committee of the U.S. government asked for an investigation to ensure that national security wasn’t being compromised.

Competition from players like Canon Inc. CAJ, Xerox Corp. and HP Inc. are additional concerns.

Currently, Lexmark has a Zacks Rank #1 (Strong Buy).

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