HP Again Rejects Xerox’s $33 Billion Takeover Bid

January 9, 2020

Despite banks financially backing Xerox, HP says proposal undervalues the company

Channelnomics Staff

Xerox may have the financial backing of some major banks for its proposed $33 billion acquisition of HP, but that still isn’t enough to get its printer rival to accept the deal.

The Lowdown: Days after Xerox announced that it had secured $24 billion from three banks to underwrite its hostile takeover plans, HP’s board of directors said that the bid continues to undervalue the company.

The Details: In a terse, three-sentence letter to Xerox Vice Chairman and CEO John Visentin this week, the HP board again rejected the acquisition offer, reiterating that the company is failing to properly value HP and therefore the financing from the banks doesn’t change the situation.

Xerox officials said in a Jan. 6 letter to HP that it had secured the funding. U.S. banks Citigroup and Bank of America and Mizuho Financial Group – based in Japan – reportedly are ready to provide 72% of the financing, erasing an earlier concern about whether Xerox had the financial muscle to pull off such a deal.

Some industry observers said the financing from the banks put Xerox in a much stronger position to buy HP. Aurojyoti Bose, lead analyst at GlobalData, wrote in a statement that “through this loan, Xerox has managed to remove one of the major roadblocks in execution of the deal, which was previously rejected by HP’s board of directors citing undervaluation, poor top-line performance of Xerox and doubting its ability to raise the required capital to close the deal.”

Bose noted that activist investor Carl Icahn, who holds a 4.24% stake in HP, supports the merger, adding that such financial backing “showcases confidence in potential of the combined entity.”

The Impact: A merger would bring together two companies that have been dominant in the printer industry but are now struggling as document exchange has become more digital and companies are printing less.

Background: Xerox initially approached HP in November with the pitch that a combined company could generate as much as $2 billion a year in savings and create a larger and more competitive company that could better take on other rivals. HP pushed backed, calling Xerox’s bid too low and questioning Xerox’s financial ability to buy a company that’s four times its valuation. However, Xerox has pressed on with a hostile takeover bid that it wants to bring directly to HP shareholders.

The Buzz: “We reiterate that the HP Board of Directors’ focus is on driving sustainable long-term value for HP shareholders,” board members wrote in the letter to Xerox’s CEO. “Your letter dated January 6, 2020 regarding financing does not address the key issue – that Xerox’s proposal significantly undervalues HP – and is not a basis for discussion. The HP Board of Directors remains committed to advancing the best interests of all HP shareholders and to pursuing the most value-creating opportunities.”