November 21, 2019
Xerox gives HP until Nov. 25 to reconsider its acquisition offer or it will go directly to shareholders
Channelnomics Staff
Xerox is getting testy in its bid to take over printer rival HP. In a letter released this morning, Xerox is giving HP three days to reconsider its rejection of the $33 billion acquisition; otherwise, it will go directly to shareholders with its offer.
The Lowdown: In the letter to HP’s leadership, Xerox expressed disappointment and confusion over the quick rejection of its plan to combine the two companies in a cash-stock deal. Xerox says it offered a premium for the outstanding stock and its plan would save both companies money through the elimination of redundant costs.
The Details: Xerox is not looking for a commitment to go forward with the acquisition, but rather just an agreement to mutually continue the financial and operational due diligence that could lead to a deal. Xerox said it’s willing to work through the details of an acquisition amicably; otherwise, the acquisition bid would turn hostile and go directly to shareholders for review.
The Impact: A merger of HP and Xerox would reorder the printer market, which is under increasing stress with the decline in printed pages. As businesses and individuals print less, their consumption of printer supplies — the profit engines of Xerox and HP — is declining. Additionally, Xerox and HP face increased pressure from foreign competition and independent supply manufacturers. If Xerox takes its offer directly to shareholders, it could spark a contentious fight to keep the companies independent of each other.
Background: Earlier this month, Xerox offered to buy HP — a company three times its size in market valuation — for $33 billion. Initially, HP considered the offer but rejected it saying that it’s confident in its plan to cut billions in operating costs through a refocused go-to-market plan. HP acknowledged it looked at buying Xerox but abandoned the idea. In its rejection of the Xerox offer, HP said it doubts Xerox could execute the acquisition given its smaller size and financial position. The deal would require Xerox to take on substantial debt.
While HP has doubts over the merger, activist investor Carl Icahn doesn’t. Icahn has substantial shares in both Xerox and HP, and is pushing for the marriage of the two companies.
The Buzz: The following is the full letter sent by Xerox CEO John Visentin to HP’s CEO Erique Lores and Chairman Chip Bergh.
“We were very surprised that HP’s Board of Directors summarily rejected our compelling proposal to acquire HP for $22.00 per share, comprising $17.00 in cash and 0.137 Xerox shares for each HP share, claiming our offer “significantly undervalues” HP. Frankly, we are confused by this reasoning in that your own financial advisor, Goldman Sachs & Co., set a $14 price target with a “sell” rating for HP’s stock after you announced your restructuring plan on October 3, 2019. Our offer represents a 57% premium to Goldman’s price target and a 29% premium to HP’s 30-day volume-weighted average trading price of $17.
Moreover, our offer is neither “highly conditional” nor “uncertain” as you state. There will be NO financing condition to the completion of our acquisition of HP.
While we are glad to see that HP’s Board of Directors acknowledges the substantial merits of a business combination between Xerox and HP and are open to exploring the value opportunity for our respective shareholders, your response lacks a clear path forward. You have requested customary due diligence, which we have accepted, but you have refused to agree to corresponding due diligence for Xerox. Any friendly process for a combination of this type requires mutual diligence—your proposal for one-way diligence is an unnecessary delay tactic. In light of favorable markets and terms, Xerox is determined to capture the compelling opportunity for our respective shareholders and strongly encourages HP’s Board of Directors not to sanction further delay in light of our extensive discussions to date.
Xerox remains willing to devote the resources necessary to complete mutual due diligence over the next three weeks and confirm the substantial cost and revenue synergies that we both believe could be achieved through a combination.
The Xerox Board of Directors is determined to expeditiously pursue our proposed acquisition of HP to completion—we see no cause for further delay. Accordingly, unless you and we agree on mutual confirmatory due diligence to support a friendly combination by 5:00 p.m. EST on Monday, November 25, 2019, Xerox will take its compelling case to create superior value for our respective shareholders directly to your shareholders. The overwhelming support our offer will receive from HP shareholders should resolve any further doubts you have regarding the wisdom of swiftly moving forward to complete the transaction.”
Related Links:
CHANNELNOMICS:
> HP Rejects Xerox Takeover Bid
> Carl Icahn: Xerox-HP Merger a ‘No-Brainer’
> Reports: Xerox Bids $30B for HP
> A New Era Dawns at Reorganized HP
