HP has rejected an increased $35 billion takeover offer from Xerox Holdings, saying it undervalues the company and is not in the best interests of shareholders. The offer showed Xerox’s “desperation…to address its continued business decline," said HP's board, adding: “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.”
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| HP Indigo plant in Kiryat Gat, Israel |
“Xerox is essentially offering HP shareholders something they already own,” HP said in a statement from its headquarters in California. The offer “meaningfully undervalues HP and disproportionately benefits Xerox shareholders” and would "create an irresponsible capital structure, resulting in significant risks for HP shareholders.
“The HP Board unanimously recommends that HP shareholders reject the Offer and NOT tender their HP shares pursuant to the Offer."
Xerox this week officially launched its increased $35 billion offer directly to HP shareholders - the latest move in its nine-month-long fight for control of HP. “Our proposal offers progress over entrenchment,” said Xerox CEO John Visentin. Following the SEC filing of the offer, competitor Canon warned it would end its 35-year relationship with HP if Xerox succeeds in its hostile bid to take over its larger rival. HP is among Canon’s biggest customers, generating almost 14% of its sales.
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"Would jeopardize the entire company":
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In rejecting the offer, Chip Bergh, chair of HP’s board of directors, said: “Our message to HP shareholders is clear: the Xerox offer undervalues HP and disproportionately benefits Xerox shareholders at the expense of HP shareholders. 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,” 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."
HP said 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."
It added: “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 HP board said 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.”
Commentary by Andy McCourt
It's all true and factual. Xerox's offer does seriously undervalue HP. Independent brand value research organisations put a price tag of between USD$11 billion and $18 billion for the brand alone. You then have to add the business itself, IP and global distribution network - something Xerox will soon no longer have since it cut ties with Fujifilm for $2.3 billion in much-needed cash. Imagine the cost for Xerox in re-establishing a dealer and distribution network in the world's biggest market - Asia-Pacific.
Even from a strictly buy-sell position, hostile take overs tend to command a 20-30% premium over 12-week average share price, which is around USD$23. This would value HP at between $38 billion and $42 billion, not $35 billion offered, which inludes a portion of Xerox stock.
Apart from 'desperate' - it's a bad deal.
Customers know, suppliers like Canon (who make most of HP's home/office printers) know - Xerox ownership and management spells trouble for HP, who might not be the sexiest stock on Wall Street but is a solid business with great R&D and strong growth in industrial print and packaging through its HP Indigo and PageWide divisions. Home/office printing is dropping for everyone, PCs are in demand but low margin - but the team pulling the levers at HP is doing better than anyone else - and making most of its profits out of printing.
Once upon a time, Xerox was a beacon of innovation, brilliance, high relevance and profitability - so much so, it was the US government who suggested Xerox should invest in its own 'University' which became Palo Alto Research Centre and gave the world PCs, Ethernet, laser printers, the GUI, Mouse and some say the early, pre www, internet. Today PARC is an independent research centre - one project it is working on for DARPA is aircraft that can disappear once a payload is delivered.
Today, the great Rochester company is a pale shadow of its former self, not quite disappearing but, in Asia Pacific at least, on a pathway to invisibility once the Fujifilm reclamation of the Fuji-Xerox joint venture T&Cs are fulfilled in March 2021.
