Xerox-HP Deal May Take Weeks to Sort Out

November 11, 2019

Xerox reportedly offers HP a month for mutual due diligence in its proposed $33 billion takeover bid

Channelnomics Staff

It could take a month before the market knows whether the two iconic companies will merge.

The Lowdown: Xerox, which proposes to take over its larger printer rival, reportedly offered to give HP a month for the respective companies to review their books and conduct due diligence, according to Bloomberg.

The Details: Initially, Xerox wanted an answer within a week from HP, which is undergoing a massive global reorganization to cut costs and increase operational efficiencies. While HP acknowledged the Xerox offer, it’s apparently feeling no pressure to act. In a statement, HP says it will give the offer fair consideration. However, HP also said its history and philosophy is to do what’s best for its shareholders, and believes its current strategy is sufficient for delivering value.

The Impact: Xerox and some industry observers believe the deal will produce significant costs savings — up to $2 billion annually — by eliminating redundant functions and processes in the combined company. Industry analysts note that the combined Xerox-HP will be a $70 billion low-growth company, cautioning that cost savings may not be enough to generate value to shareholders, partners, and customers.

Background: Xerox and HP are both feeling the pain of declining demand for printer and copier equipment and supplies. The once-highly profitable technology is suffering as more businesses and consumers shrink their print-page use in favor of digital technologies. Additionally, the two companies face stiff competition in the market from foreign rivals — particularly Canon and Ricoh.

Xerox is about 3.5 times smaller than HP in terms of market value and 6 times smaller in terms of gross revenue. Xerox is offering approximately 70% cash and the balance in stock to take over HP. The deal is reportedly backed by Citibank.

According to CNBC, HP considered buying Xerox, and held detailed discussions over the past few months. The talks broke off as HP needed more time to consider its options, CNBC reported.

The Buzz: “A merger with HP would create a behemoth printing and PC maker with nearly $70 billion in revenue,” said technology analyst Robert Schiffman. “Though top-line growth challenges may remain in the intermediate term, synergies could help boost annual free cash toward $5 billion and enable future deleveraging.”