Pitney Bowes to Sell Software Solutions Business to Syncsort for $700 Million in Cash, Reduces Guidance from Divestiture and Tariffs

Software Solutions was Pitney Bowes’ third-largest segment in 2018, with $341 million in total revenues and accounting for 9.7% of total revenues. The $700 million purchase price represents slightly more than two times last year’s revenues for the business unit. In 2018, the segment generated EBIT of $47 million, representing a margin of 13.8%, below the corporate average of 17.7%.

Management reiterated its corporate policy of considering the sale of a business when it has more value to an external entity. Since its evaluation of strategic alternatives in 2018, the company has:

• Divested the Document Messaging Technologies Production Mail and supporting software business.
• Sold its direct operations within the Global SMB business in six smaller European countries and paid down debt.
• Returned cash to shareholders in the form of dividends and share buybacks.
• Launched Wheeler Financial Services.
• Continued to invest the core business with new products in Global SMB and new capabilities in Commerce Services, including expanding the domestic delivery network.

The divestiture should enable Pitney Bowes to proceed as a streamlined, global technology company focused on shipping, mailing and related financial services businesses, focusing on markets in which management believes it has a true competitive advantage.

The company plans to use the majority of the net sale proceeds to pay down near-term debt.

Pitney Bowes expects the divestiture to be earnings neutral in the 12 months following the closing of this transaction, due to lower interest expenses from paying down debt and other spending cuts.

The company revised 2019 guidance as follows:

• Revenue growth of 1-2% on a constant currency basis compared to the revised 2018 revenue (to account for the divestiture), down from up 1-3% previously.
• Adjusted EPS from continuing operations of $0.65-0.75, down from $0.90-1.05.
• Free cash flow of $175-205 million, down from $200-250 million.

This updated annual adjusted EPS guidance reflects the impact of the divestiture plus the impact from the higher level of tariffs, to be partially offset by a deferred tax asset valuation allowance reversal. Due to the resulting shift in business timing, the company now expects third-quarter adjusted EPS to account for 32-34% of the annual total and for fourth quarter revenues to account for 26-28% of the annual total.

Guidance reflects the shift of the business to the fourth quarter as shipping continues to be a larger part of the portfolio.

Implications for retail: The divestiture will enable the company to part with a non-core, lower-margin business and enable management to focus on its core shipping, mailing and related financial services businesses.