NEW YORK (Reuters) - Xerox Corp. (NYSE:XRX - news), said on Tuesday it will sell its office copier- and printer-making operations to Flextronics International Inc. (Nasdaq:FLEX - news) for $220 million, an agreement affecting some 6,000 employees that is one of the final steps in Xerox's year-old restructuring plan.
Under the agreement, more than 3,600 Xerox employees at plants around the world will be transferred to Flextronics, and another 1,250 in the Netherlands are expected to be transferred following further negotiations with European works councils.
However, about 700 employees will be released at U.S. factories that will stop production, and up to 380 jobs will be eliminated at European plants.
Shares of Xerox closed up 34 cents to $7.78 on the New York Stock Exchange (news - web sites) on Tuesday, while Flextronics shares rose 5 cents to $16.03 on the Nasdaq.
For Xerox, whose name has been synonymous with photocopiers, the pact with Flextronics, a Singapore-based contract manufacturer, means it will no longer build office copiers, but will continue to sell them.
``Over the years we have found that our capacity to produce these devices far outstretched the requirement to produce them as we secure our devices from varied sources,'' said Ursula Burns, president of Xerox's manufacturing operations.
``So we have made a strategic decision to focus our ability on areas where we can be competitive and have a leadership position,'' such as its high-end products, she told Reuters.
Xerox will continue to manufacture high-powered devices, such as its DocuColor line, which includes machines owned by professional print shops and publishers. The operations being sold represent more than $1 billion in annual costs, or about 50 percent of Xerox's manufacturing operations.
KEY STEP IN TURNAROUND PLAN
The pact is one of the final key steps in Xerox's plan, announced about a year ago, to cut $1 billion in costs and raise cash in an effort to address its hefty debt load and growing competition, and return the Stamford, Connecticut-based company back to profitability.
Anne Mulcahy, Xerox's new chief executive who has spearheaded the turnaround plan, previously pledged the company would also sell $2-$4 billion in assets this year.
``Our agreement with Flextronics will redefine our office manufacturing strategy through significantly improved asset utilization, greater supply-chain flexibility and cost savings as well as generating cash from the asset sales,'' she said in a statement.
Salomon Smith Barney Analyst Jonathan Rosenzweig said the deal will help Xerox cut about $200 million in annual costs. But, he said, with many of its turnaround goals reached, Xerox must now prove it can compete in its core business; selling equipment.
``Now they have most of the key elements out of the way, including the assets sales, the third-party vendor financing in the U.S.,'' he said. ``What everybody is still waiting for is the turnaround on the operating performance.
``Profit and working capital are areas we need to see some improvement, but those things become more difficult in the current environment,'' he said, alluding to a sluggish economy which has been further stunned by the Sept. 11 attacks on the United States.
Under the pact, Xerox will sell to Flextronics its office manufacturing operations including manufacturing assets and inventory in Toronto; Resende, Brazil; Aguascalientes, Mexico; and Penang, Malaysia. Xerox expects to transfer 3,650 Xerox employees to Flextronics, the companies said.
In Mexico, where in February Xerox acknowledged previous accounting irregularities, the company said it foresees no job losses resulting from the move. The plant in the central state of Aguascalientes has some 2,300 employees.
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