International Business Machines Corp. is spinning off its printing division into a new company that Japan's Ricoh Co. will control, part of IBM's ongoing efforts to pare sideline businesses and focus on more profitable segments of the technology industry.
The deal, announced Thursday, will see Ricoh pay IBM $725 million in cash up front and an unspecified remainder later. Ricoh initially will own 51 percent of the new company, InfoPrint Solutions Co., and will take full ownership within three years.
Ultimately IBM expects a pre-tax gain between $175 million and $275 million. Between $100 million and $150 million of that should come when the deal closes, in the second quarter.
The spinoff had little effect on IBM shares, which were up 34 cents to $97.74 in morning trading Thursday on the New York Stock Exchange.
Faced with middling overall growth in corporate technology spending, IBM has sold off several units in recent years in hopes of increasing its profit margins. The biggest deals have included IBM's $2.05 billion sale of its disk-drive business to Hitachi Ltd. and the $1.75 billion sale of its personal-computer business to China's Lenovo Group Ltd.
IBM's printing division has a long history but has diminished in the company over time. In 1991, IBM sold off its typewriter and low-end printer businesses, creating a company that became today's Lexmark International Inc.
The remaining division now heading to Ricoh has focused on high-quality production printing hardware and software for large businesses. It is profitable, according to IBM Executive Vice President Nick Donofrio.
But according to IBM's latest annual report, filed nearly a year ago, the printing unit shrank from $1.34 billion in revenue in 2003 to $1.14 billion in 2005. IBM said the unit's sales were about $1 billion last year.
Given that slowdown, IBM decided it would be better to let someone else invest in driving the division forward.
"It doesn't mean it's a bad business - far from that. It simply means it needs a new direction," Donofrio said. "It became more and more obvious that we needed to do something here."
InfoPrint Solutions will have about 1,200 employees and headquarters in Boulder, Colo. Eventually, an additional 1,000 IBM printer-maintenance specialists may join the company, depending on how the business progresses.
It will be headed by Tony Romero, who had been managing the business for IBM.
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