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Lexmark's Buyout by Chinese Consortium Gets CFIUS Approval

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Shares of Lexmark International Inc. jumped last Friday, after the printer and imaging products manufacturer revealed in an SEC filing, that the Committee on Foreign Investment in the United States (CFIUS) has approved its proposed buyout by a Chinese consortium.

Per the filing, the CFIUS found no unresolved national security issues related with the acquisition, and has thus given the green signal. However, it has asked the parties acquiring Lexmark to sign a national security agreement with the U.S. Departments of Defense and Homeland Security.

The clearance from CFIUS has removed a major hurdle associated with the acquisition. Upon this disclosure, shares of Lexmark hit a new 52-week high of $40 last Friday before settling slightly below at $39.96, representing an intraday gain of approximately 13.8%.

The Deal

In April this year, Lexmark agreed to be acquired by a Chinese consortium led by Apex Technology Co., Ltd. (Apex) and PAG Asia Capital (PAG). Legend Capital Management Co., Ltd. (Legend Capital) was also one of the buyers. Per the agreement, the consortium will acquire Lexmark for $3.6 billion or $40.50 per share in cash.

The Goldman Sachs Group, Inc. (GS - Free Report) served as the exclusive financial advisor to Lexmark, while Wachtell, Lipton, Rosen & Katz constituted its legal counsel.

The transaction, which all the parties expect to close by the end of this year, is now required to be cleared by China's State Administration of Foreign Exchange.

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 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."

Bottom Line

Lexmark’s second-quarter results were not very encouraging given the earnings miss. Also, both earnings and revenues decreased on a year-over-year basis primarily due to a strong U.S. dollar, a decline in non-MPS revenues, and the company’s exit from the Inkjet business.

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

Competition from players like Canon Inc. (CAJ - Free Report) , Xerox Corp. and HP Inc. (HPQ - Free Report) are additional concerns.

Currently, Lexmark has a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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