HP has turned down Xerox’s offer to buy the business for US$33.5bn ($52.1bn), citing concerns about Xerox’s declining revenue and future business trajectory.
Xerox Corporation made the unsolicited offer November 5 with Xerox chairman and cheif executive John Visentin writing to HP chairman Chip Bergh, outlining the proposal to combine the two companies and, in doing so, to generate substantial synergies and strength in the balance sheet. The offer that included paying HP shareholders $22 per share comprised of $17 in cash and 0.137 Xerox shares for each HP share.
It came after activist investor Carl Icahn, who has a stake in both companies, described the proposed merger to the Wall Street Journal as a “no-brainer”. He said a union could yield major profits for investors. As part of its case Xerox said combining the two businesses presented a strong industrial logic given the strengths of both businesses in the A3 and A4 markets, complementary footprint, deep cultural fit and shared DNA of innovation.
However, in a letter signed by Bergh and HP chief executive Enrique Lores, they say the offer “significantly undervalues HP and is not in the best interests of HP shareholders. In reaching this determination, the (HP) Board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsized debt levels on the combined company’s stock.
“We have great confidence in our strategy and our ability to execute to continue driving sustainable long-term value at HP. In addition, the Board and management team continue to take actions to enhance shareholder value including the deployment of our strong balance sheet for increased repurchases of our significantly undervalued stock and for value-creating M&A. We recognise the potential benefits of consolidation, and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox.
“However, as we have previously shared in connection with our prior requests for diligence, we have fundamental questions that need to be addressed in our diligence of Xerox. We note the decline of Xerox’s revenue from $10.2bn to $9.2bn (on a trailing 12-month basis) since June 2018, which raises significant questions for us regarding the trajectory of your business and future prospects.”
The offer for HP coincided with Xerox’s decision to sell its 25 per cent stake in Fuji Xerox, which was a joint venture it entered into with Fujifilm Holdings in 1957. The divestment also resolved pending legal action without any monetary payment and achieved a more flexible strategic sourcing relationship.