Xerox leaving financial services arena Copier giant will sell Crum & Forster unit to Fairfax Financial Holdings

Office equipment

March 12, 1998|By BLOOMBERG NEWS

STAMFORD, Conn. -- Xerox Corp. said yesterday that it will sell its Crum & Forster Holdings Inc. subsidiary to Fairfax Financial Holdings Ltd. for $680 million, completing its five-year exit from the financial services industry.

Fairfax, a Toronto insurance and investment management company, will pay Xerox $565 million in cash for the commercial property and casualty insurer and assume $115 million of its debt.

The purchase is the latest by Fairfax Chairman Prem Watsa, who has built a reputation for buying and turning around insurers.

Xerox, the Stamford, Conn.-based copier maker, expects about $75 million in costs from the sale. It also will take a charge of less than $200 million in the first quarter related to earlier sales of three units.

"They can finally now go forward and concentrate on selling copiers and digital products, which they do very well," said Standard & Poor's Corp. analyst James Corridore. "It took a long time" to sell the financial businesses, but Xerox was determined to "get the right amount of money for each of these units," he said.

Xerox shares rose $1.0625 to close at a record $94.75. Fairfax Financial surged C$34 to C$395 (US$280.44) on the Toronto Stock Exchange, its biggest gain since September 1996.

Over three years, Fairfax has snapped up insurers, including Sphere Drake Holdings Ltd. of the United Kingdom, Skandia America Reinsurance and Compagnie Transcontinentale de Reassurance. It plans to pay for Crum & Forster with stock and bond offerings.

"Their expertise is buying what other people shun," said Don Smith, the chairman of TRAC Insurance Services Ltd. "They quantify their reserve risk, and then, if they like the answer, they step up to the plate and buy it when no one else will."

Crum & Forster sells liability auto and worker's compensation coverage to midsize U.S. businesses. The Morristown, N.J.-based company has about 1,650 employees and wrote $939 million of premiums last year.

Xerox may use proceeds from the sale to buy back stock, spokesman Judd Everhart said. "Assuming this closes sometime in the third quarter, that would certainly be something we would begin to consider again," he said.

Xerox was among many industrial companies, including Westinghouse Electric Corp. and Weyerhaeuser Co., that expanded into financial services during the 1980s, only to sell those businesses later. Xerox began its foray in 1983.

The Crum & Forster sale will be Xerox's seventh since its 1993 decision to get out of the business.

Xerox has been expanding its line of higher-priced digital copiers -- a market it dominates -- faster than its competitors. It's ahead in sales as businesses switch from analog copiers to digital machines, which have higher profit margins. The machines can be hooked up to computer networks, giving Xerox another avenue for sales.

Digital copiers produce images that can be stored electronically and are more precise than traditional analog copiers. Sales of digital products made up 41 percent of Xerox sales in the fourth quarter, up from 35 percent a year-ago.

Xerox sales last year rose to $18.17 billion, surpassing the prior high of $17.72 billion set in 1990.

Pub Date: 3/12/98

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