How long will it take the U.S. government to disentangle itself from the financial services sector?

More than 16 years, according to a new Piper Jaffray paper.

“The more likely answer may be that the U.S. government may never be fully repaid,” reads the paper, “Opportunities for Private Equity in Financial Services,” released last week.

The estimate is based on assumptions, including that $3 trillion of U.S. government funding has to be fully repaid and no addition funds are drawn from $23.7 trillion in commitments. 

For private equity investors, who are the focus of the paper, that’s the new reality to keep in mind when making decisions about invesmtents in this field.

“The U.S. government’s direct stakeholdings in the financial services sector will persist for many years and private equity investors should be prepared for the U.S. government’s involvement to span multiple investment, economic and political cycles,” it reads.

Still, the industry that includes banks, insurers, specialty finance and financial technology companies is likely to present ample opportunities for private equity to invest, according to the 49 page report, which also includes a sector-by-sector update on the state of affairs.

“We believe that in this period of extinction, re-birth and evolutionary change, the financial services sector will present many complex challenges for private equity investors but those will be outweighed by extraordinary opportunity,” the paper reads.

Xerox, which said early Monday morning it will buy Affiliated Computer Services for $6.4 billion, has had its eye on the IT services company for at least two years, but talks only began toward the end of the first quarter of 2009, several people familiar with the matter told Dealzone. Blackstone, which advised Xerox, worked with the company on this over the past 18 months, in addition to making the introductions earlier this year, according to one source.

Talks grew hot and heavy over the summer, especially as the credit market conditions improved, a second source said. Xerox has committed financing of $3 billion for this deal, which is being arranged by JPMorgan, so the deal only began to look like a real possibility once the financing side was sorted out.

ACS, which competes with other technology services providers such as Computer Sciences Corp and Accenture, is an attractive company because of its recurring revenue business model. It’s been an especially alluring target for private equity buyers, with Cerberus having offered to buy it for $62 a share in 2007. Cerberus withdrew its offer citing the credit crunch and ACS management’s refusal to engage with them. TPG was also interested in ACS about five years ago, the second source added.

Buyout firms didn’t lose the opportunity to sniff around at ACS this time around either, the sources said, although it’s not clear if the ACS management asked its bankers to run a formal sale auction.

“Every PE firm in the world that could raise the debt was kicking the tires on this one because of the cash,” said the third source.

So after doing the M&A dance for months, why did the companies rush to announce the deal on Yom Kippur, the Jewish holiday? Apparently, word got around on Sunday that Xerox was preparing a significant announcement, and some reporters were tipped off about it, two of the sources told Dealzone. But the Xerox board only ended up meeting late at night to approve the deal, and so it was considered “safe” to hold on to the announcement overnight, but not through all of Monday!

After Dell went to its $10 billion treasure chest to buy up Perot Systems for $3.9 billion, you might have expected investors to be a little more excited about Xerox’s bid for ACS. After all, business services helps Xerox get away from nuts and bolts copiers, much the way Perot was seen helping Dell move away from building computer boxes. And ACS is seen giving Xerox more chips to play against HP, which bought Electronic Data Systems a little over a year ago.

The Xerox bid, unveiled at $6.6 billion, includes 4.935 Xerox shares and $18.60 in cash for each share of ACS. That totaled $63.11 per share based on Friday’s closing prices, but with Xerox shares having lost more than 15 percent in the opening minutes today, the value is now down to a little over $55 per share. Has the office copy machine behemoth misjudged the market? Dell’s stock lost only about 6 percent following the Perot announcement.

Perhaps the issue was more one of timing than anything else. Monday is the Yom Kippur Jewish day of atonement. Speaking with analysts, Xerox CEO Ursula Burns apologized “for our need to do this announcement on Yom Kippur” “It certainly was not our intention.” they wanted to do it before it leaked, she said. The company may have a lot more than bad timing to atone for if investors don’t get behind the deal.

Belgium’s Solvay is selling its drugs unit to U.S. partner Abbott Laboratories for 4.5 billion euros ($6.6 billion) in cash and reinvest in chemicals and plastics. Sources familiar with the deal have earlier told Reuters Abbott had agreed to buy the unit to bloster its flagging prescription drug business.

Australia’s biggest department store chain Myer plans to raise up to $2 billion in a share offering that will test investor appetite for retail stocks.

In M&A news reported by Reuters and elsewhere on Monday: 

* A Saudi prince is set to spend up to 350 million pounds ($558 million) to buy a 50 percent stake in English soccer club Liverpool, al-Riyadh newspaper quoted him as saying on Sunday. 

* Kraft Foods Inc (KFT.N) is poised to launch a hostile bid for Cadbury  (CBRY.L) valuing the British confectionery business at around 11 billion pounds ($17.6 billion), a report in The Observer newspaper says. 

* Italian cable maker Prysmian (PRY.MI) has 1 billion euros ($1.5 billion) in liquidity to fund growth and is eying acquisitions in high-growth areas such as Russia, the company’s chief executive told Sunday’s Il Sole 24 Ore. 

* Russia’s Rusal, the world’s top aluminium producer controlled by Russian businessman Oleg Deripaska, is ready to file a prospectus for a Hong Kong listing, which will value the firm at $30 billion, the Sunday Times said. 

* ENN Solar, the solar cell company controlled by the chairman of Xinao Gas Holdings (2688.HK), could seek a listing in Hong Kong as early as the middle of next year, the South China Morning Post reports.

* Agricultural Bank of China, the only big state lender that has yet to float shares, plans to list only in Shanghai and will not list any shares in Hong Kong, the South China Morning Post reports.

More big consumer brands are being dealt across the Atlantic. With Kraft’s bid for Cadbury churning, consumer goods giant Unilever plans to pay 1.275 billion euros ($1.87 billion) for a chunk of Sara Lee’s personal care brands, helping the cake maker sheds non-core businesses to focus on food. Sara Lee shareholders are sweet on the deal – bidding the stock up more than 9 percent in early trade. In a space reserved for winners and losers, this deal looks like it has natural benefits for both parties.

The asset sale is quite a bit less rich than the chocolate deal, which is for the whole of Cadbury rather than just its brands, the soap business brings with it a fresh scent of a recovery in deals activity. It is the first major acquisition for the Anglo-Dutch company’s new Chief Executive Paul Polman, and Sara Lee’s CEO Brenda Barnes is still only half-way through her business-shedding exercise.

Credit Suisse analyst Charlie Mills said the price Unilever is paying of 10 times core operating profit, or EBITDA, is not huge by industry standards, reflecting the fairly disparate collection of assets. Brylcream hair gel is part of the mix.

“We’re not convinced that this is the greatest collection of assets but another acquisition shows Unilever still moving from the back foot (cost cutting and disposals) to the front foot (volume growth and acquisitions),” he said. It may also be worth remembering that the deal speaks to Unilever’s business. It is built on brands, whereas Sara Lee is a brand unto itself.

So far as markets are concerned, Sara Lee is the winner here. Having been able to find a buyer for a huge chunk of assets it had on the block, it is now going to be able to buy back more stock and preserve its 11-cent quarterly dividend.