Says $35 billion bid undervalues company, would disproportionately benefit Xerox shareholders
Officials with PC and printer giant HP once again have rejected Xerox’s unsolicited $35 billion bid, urging shareholders to reject the tender offers presented by the smaller company earlier this week.
The Lowdown: Xerox, which has raised the price it would pay for HP twice since making its initial offer in November 2019, delivered a formal tender offer to HP shareholders March 2.
The Details: On Thursday, HP pushed back against the offer, arguing again that Xerox’s bid will harm shareholders. The company laid out numerous reasons for recommending that investors reject the offer, including:
> The offer essentially would give shareholders something they already own and would benefit Xerox investors disproportionately.
> Xerox would use HP’s balance sheet as consideration for the transaction to benefit Xerox shareholders.
> Xerox’s offer undervalues HP by not reflecting the full value of HP’s assets and its strategic and financial value creation plan.
> HP has a strong history of executing on its plans that have led to strong and consistent operational and financial performance.
> HP will create more value as a stand-alone company, and its balance sheet and financial flexibility will help drive that value creation.
HP officials also said Xerox’s estimates of cost savings through synergies are not realistic, that it doesn’t have experience in all areas of HP’s business, such as PCs and home printing, and that there are questions about how Xerox runs its business that should worry HP shareholders. Most notably, HP pointed to Xerox’s declining sales, the sale of its interest in a joint venture with Fuji, cost-cutting measures that hurt the company long-term, and a lack of focus on R&D.
The Impact: In the past few months, there have been a series of punches and counterpunches between the two companies. Xerox has raised its offer from $30 billion to $35 billion and is pushing to have the HP board replaced with candidates of its choosing (an indication of Xerox’s desperation to use HP to stop its business decline, HP said). HP – which is four times the size of Xerox and owns about 40% of the printer market – has rejected Xerox’s efforts several times and has unveiled plans to keep shareholders in the fold, including share buybacks, $16 billion in capital returns over three years, and long-term return of capital.
Xerox’s efforts also are causing HP headaches with other vendors. HP buys components for laser printers from Canon, but Canon Chairman and CEO Fujio Mitarai said this week that his company will end its 35-year relationship with HP if Xerox buys it.
Background: Both companies are competing in a printing industry that’s struggling as businesses and consumers increasingly embrace digital documents. The deal is further complicated by the presence of activist investor Carl Icahn, who holds significant stakes in both companies and is pushing for the merger.
The Buzz: “Our message to HP shareholders is clear: The Xerox offer undervalues HP and disproportionately benefits Xerox shareholders at the expense of HP shareholders,” said Chip Bergh, chair of HP’s board of directors. “The Xerox offer would leave our shareholders with an investment in a combined company that is burdened with an irresponsible level of debt and which would subsequently require unrealistic, unachievable synergies that would jeopardize the entire company.”
“At HP, we’re creating value, not risk,” HP President and CEO Enrique Lores said. “HP is a trusted brand with a strong track record of value creation and we’re executing a clear plan that will drive significant earnings growth. We’re well positioned in our categories, aggressively attacking costs and pursuing the most value-creating path for our shareholders.”