On November 17, HP’s board unanimously rejected Xerox’s bid to acquire the company “because the offer is not in the best interest of shareholders and would undervalue HP.” Xerox offered HP $22 per share; the transaction would be 77 percent cash and 23 percent stock, the equivalent of $17 and 0.137 Xerox share for each HP share. The total cost would be $33.5 billion.
“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… 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 HP board wrote.
Carl Icahn, a noted activist investor with a 10.6 percent stakeholder in Xerox, believes a merge with HP will help both businesses reduce costs, create a better array of printing products and help investors. Icahn recently bought a $1.2 billion stake in HP, which equates to a 4.24 percent stake. Carl Icahn sees a great opportunity with this merger. “I think a combination is a no-brainer,” he told the Wall Street Journal.
Both former tech giants, HP and Xerox have struggled in recent years. CNN reported that “Xerox argued in its proposal that the deal between the two similar businesses could yield cost savings of about $2 billion through a combined supply chain, distribution network, and research and development team, and by ‘streamlining’ other corporate functions.” Additionally, HP is restructuring the company, in an effort to save approximately $1 billion a year by cutting 7,000 to 9,000 jobs by the end of the fiscal year in 2022. This would be a loss of 16 percent of its workforce. HP is expanding its stock repurchase program and is also considering a new business model and business ventures.
Valued at $8.5 billion, it is unusual that Xerox would want to acquire the much larger HP valued at $27 billion. However, HP did not completely close the door on a potential merger with Xerox. “We believe it is critical to engage in a rigorous analysis of the achievable synergies from a potential combination,” the HP Board said. “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. We remain ready to engage with you to better understand your business and any value to be created from a combination.”