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HP offers Xerox a multitude of reasons for rejecting its offer.
Lynn Haber
March 5, 2020
4 Min Read
Shutterstock
It appears that Xerox won’t take no for an answer. Just three days after it launched a tender offer to acquire all outstanding share of HP for $24 per share, HP slapped back at Xerox with a stern “no.”
Xerox’s latest strategic move comes on the heels of HP’s announcement outlining a multiyear plan to grow earnings and the company, maintaining its steadfast commitment to shareholders. Not only did HP reject Xerox again, citing that its latest offer was not in the best interests of HP shareholders, but the HP board unanimously recommends that shareholders reject the offer and not tender their HP shares pursuant to the Xerox offer.
HP’s Chip Bergh
“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.”
Why does HP’s board not love Xerox’s offer? Let’s count the ways — more than a dozen of them, which the vendor detailed in a Schedule 14D-9 filed with the Securities and Exchange Commission:
The Xerox offer, in effect, principally offers HP shareholders something they already own, and would disproportionately benefit Xerox shareholders relative to HP shareholders.
The Xerox offer would use HP’s balance sheet as transaction consideration for the benefit of Xerox shareholders.
The Xerox offer meaningfully undervalues HP by failing to reflect the full value of HP’s assets and its standalone strategic and financial value creation plan.
HP has a track record of execution that has resulted in strong, consistent operational and financial performance.
The HP board believes that HP’s standalone plan has positioned HP for significant value creation.
HP’s strong balance sheet and financial flexibility provide multiple levers for value creation.
The HP board believes that the Xerox Offer would compromise the future of HP and the value of shares of HP common stock by transferring value to Xerox shareholders and leaving HP shareholders with an investment in a combined company with an irresponsible capital structure, premised on unrealistic synergies estimates.
HP believes that Xerox’s “synergy” estimates, including cost cuts, exceed reasonably achievable levels.
The Xerox Offer includes a significant equity component, the value of which the HP Board believes would be subject to significant risks and uncertainties.
Xerox does not have experience operating businesses in the sectors in which HP operates, including within Personal Systems, Home Printing, and 3D and Digital Manufacturing.
Xerox has been experiencing declining sales and its recent sale of its interest in the Fuji-Xerox joint venture raises significant concerns about its future position.
HP believes that Xerox’s cost-cutting has come at the expense of long-term value creation, and Xerox has demonstrated a lack of focus on research and development.
The quantity and nature of the conditions of the Xerox Offer create significant uncertainty and risk.
The HP board believes that Xerox’s urgency in launching the Offer, while simultaneously running a full slate of director nominees for election at HP’s 2020 Annual Meeting of Shareholders, evidences Xerox’s desperation to acquire HP to address its continued business decline.
“At HP, we’re creating value, not risk,” said Enrique Lores, HP’s president and CEO. “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.”
Clearly there’s no meeting of minds between HP and Xerox vice chairman and CEO John Visentin, who this week said “Our proposal offers progress over entrenchment. HP shareholders will receive $27 billion in immediate, upfront cash while retaining significant, long-term upside through equity ownership in a combined company with greater free cash flow to invest in growth and return to shareholders.”
This latest offer/rejection is the latest in an acquisition bid by Xerox that began in November.
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