Moody's May Downgrade Xerox On Plan To Split In Two

Moody's Investors Service on Friday placed Xerox Corp.'s Baa2 senior unsecured debt rating on review for a possible downgrade, and said the decision to split in two will create smaller companies with less business diversity and profitability than the current one. The move comes after Xerox said it will create an $11 billion document technology company and a $7 billion business process outsourcing company by the end of 2016. "Xerox has not announced capitalization plans for DT or the BPO units post-spinoff, nor how much of its $1.4 billion in cash will be allocated between the two companies," Moody's acknowledged in a statement. It said its review will focus on the post-split capital structure, liquidity profile, shareholder return policies, future strategy, competitive positioning and growth prospects for each business. It will also evaluate the impact of the $2.4 billion in cost cuts the company plans over the next three years. Moody's Baa2 rating is just two notches above speculative, or junk status. Xerox shares were up 5.3% in early trade, but have fallen 28% in the last 12 months, while the S&P 500 has lost 5%.