HP rejects Xerox takeover offer

HP has rejected a takeover offer from rival Xerox, with the board saying the $33.5-billion approach undervalued the business.

Sarah Skidmore Sell reported the news for the AP:

HP Inc. says its board has rejected a roughly $33.5 billion takeover offer from Xerox.

The Palo Alto, California-based company said Sunday that the cash and stock deal undervalues its business and its board cited concerns about “outsized” debt levels should the companies combine.

HP, which makes computers and printers, said it recognizes the potential benefits of consolidation and remains open to exploring other options to combine with Xerox Holdings Corp.

Both companies have faced difficulties as the demand for printed documents and ink have waned.

Xerox offered earlier this month to give HP shareholders $17 in cash and a fractional share of Xerox stock for each share they held in HP. They put the total value of the deal at $33.5 billion. If the deal had been completed, HP shareholders would own approximately 48% of the combined company.

HP rejected the offer, saying that it has “great confidence” in its ability to deliver long-term value. Its board also said it had “significant questions” about the trajectory of Xerox’s business and prospects, particularly given a recent decline in its revenue.

Emma Newburger reported for CNBC the rejection was unanimous:

“In reaching this determination, the 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,” the board wrote in a letter to John Visentin, Xerox’s CEO. 

HP announced in October that it will cut between 7,000 and 9,000 jobs by the end of fiscal 2022 as part of a broader restructuring plan that it estimates will save $1 billion a year. The cuts would amount to nearly 16% of its 55,000 employees across the world, according to data from FactSet.

The software company is worth $29 billion and is over three times the size of Xerox, which makes printers and copiers, in terms of market cap.

“We note the decline of Xerox’s revenue from $10.2 billion to $9.2 billion (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 board wrote. 

“In addition, we believe it is critical to engage in a rigorous analysis of the achievable synergies from a potential combination,” the board wrote. “With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction.”

Forbes’s Rachel Sandler wrote:

HP’s board of directors unanimously rejected a proposal from Xerox to acquire the company, HP announced Sunday, scuttling a deal that would have united the two struggling printing companies—but the rejection left open the possibility of a deal after more due diligence.

• In a letter to Xerox’s CEO, HP’s board of directors said Xerox’s proposal “significantly undervalues HP and is not in the best interests of HP shareholders,” adding that a combined company might have too much debt.
• HP also said it had reservations about the decline in Xerox’s revenue, which has decreased from $10.2 billion to $9.2 billion since June 2018.
• But a deal could still be worked out in the future, HP said, if Xerox hands over due diligence information about its business. 
• Xerox had offered to spend $22 per share, or $33.5 billion, to acquire HP earlier this month, making the case that combining both companies would result in $2 billion in cost savings over two years.
• The rejection is a loss for famed investor Carl Icahn, who pushed for a merger. Icahn holds a 10.6% stake in Xerox as well as a 4.24% stake in HP.