Iridian nearly doubles its holdings in Lexmark International



Iridian’s holdings in Lexmark

Iridian Asset Management’s recent 13G filing in January revealed that it increased its holdings in Lexmark International, Inc. (LXK) by 49%. The fund, which previously held 4,294,412 shares of Lexmark, presently holds 6,410,592 shares. This represents a 10.4% passive stake in the company.

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Lexmark International: A company overview

Incorporated in 1990, Lexmark International, Inc. (LXK) offers process and content management as well as imaging and printing with a specific focus on corporate customers. The company manages its operations in the following two segments: Perceptive Software and Imaging Solutions and Services (or ISS).

In its ISS segment, Lexmark offers its customers a diverse portfolio of products. This includes color and monochrome laser printers and laser multifunction products, software solutions and applications, and managed print services.

The Perceptive Software segment offers business process management solutions that enable users to collaborate, capture, and manage important business information, documents, and processes as well as protect the integrity of data and access content within the context of day-to-day business processes.

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Value proposition and market outlook

Lexmark is focused on high value solutions for solving the unstructured information challenges that customers face. The company is transforming itself through acquisitions and expansion. It’s been improving shareholder value by creating positive free cash flows for 13 consecutive calendar years.

The market for higher value solutions is expected to grow significantly in the coming years. The company expects the content and process software market to grow at a CAGR (compound annual growth rate) of approximately 10%.

Lexmark completes two major acquisitions to bolster Perceptive Software’s offerings

Lexmark recently acquired ReadSoft for $251 million. ReadSoft, which automates the processing of business documents with cloud and on-site software, will give Lexmark more than 10,000 customers in 70 countries, increasing Perceptive Software’s growth significantly in Europe, the Middle East, and Africa (or EMEA).

Lexmark and Perceptive Software also acquired Claron Technology for $37 million in cash. Claron Technology provides medical image collaboration, sharing, distribution, and viewing technologies. Claron Technology’s offerings are expected to be a good fit with Perceptive Software’s technologies. It will provide customers with a highly comprehensive system for capturing, storing, viewing, and exchanging medical imagery.

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Lexmark’s new digital sign solution enables retailers to create effective product promotions

Lexmark International, Inc. (LXK) has launched the Digital Endcap solution. Endcaps are vital for retail businesses. Though they represent only about 2% of items sold at a retail location, endcaps could contribute to roughly 30% of sales in a retail store. Retailers face the challenge of accurate and frequent store-level updates in order to maximize the value of endcaps.

Lexmark’s Digital Endcap solution aims to address this issue by helping retailers increase the accuracy and speed of signage execution in stores. This will help retailers ensure proper representation of brands, move inventory, and enhance revenue. Digital Endcap also streamlines store operations for promotions, eliminates the need for lifts or ladders, eliminates expenses and delays pertaining to paper signage, and offers headquarters data pertaining to promotional activities at the store level.

4Q14 financial summary

Lexmark’s revenue growth exceeded the guidance range for October. Revenue for Managed Print Services grew by 16%, while Perceptive Software grew by 37%.

The company also employs disciplined capital allocation and generates solid cash flows. Close to 80% of free cash flow has been returned to shareholders since 2011. There has also been a consistent repurchase of the company’s shares.

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Growing external recognition in 2014

Lexmark was recognized as a leader in Managed Print Services for the fourth consecutive year by Gartner and for the third consecutive year by Quocirca and IDC (International Data Corporation). In Content and Process Management, the company was recognized by Gartner as a challenger in Enterprise Video Content Management, a leader in Enterprise Search, and a leader in Enterprise Content Management.

Iridian Asset Management’s 13G positions

According to its 13G filing, Iridian Asset Management didn’t initiate any new positions.

The fund increased its holdings in the following companies:

  • Myriad Genetics, Inc. (MYGN)
  • Service Corporation International/US (SCI)
  • Avis Budget Group, Inc. (CAR)
  • Omnicare, Inc. (OCR)
  • Halozyme Therapeutics Inc. (HALO)
  • Theravance Inc. (THRX)
  • AOL Inc. (AOL)
  • Lexmark International, Inc. (LXK)
  • The Valspar Corporation (VAL)
  • W.R. Grace and Company (GRA)
  • Sealed Air Corp. (SEE)
  • Pitney Bowes Inc. (PBI)
  • Graphic Packaging Holding Company (GPK)
  • SemGroup Corporation (SEMG)

A significant aspect of the fund’s 13G filings is that Iridian Asset Management dropped the following two key positions:

  • Dresser-Rand Group, Inc. (DRC)
  • Wyndham Worldwide Corporation (WYN)

In the next part of this series, we’ll look at Iridian Asset Management’s position in Valspar Corporation (VAL).


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