HP Confirms Xerox Takeover Offer, But Isn’t Ready to Say Yes
(Bloomberg) — HP Inc. confirmed that Xerox Holdings Corp. has made a takeover offer, a potential deal between two iconic names in technology that would reshape the printing industry.
“We have had conversations with Xerox Holdings Corporation from time to time about a potential business combination,” the Palo Alto, California-based company said Wednesday in a statement. “We received a proposal transmitted yesterday. We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline and an eye toward what is in the best interest of all our shareholders.”
Citigroup Inc. has agreed to provide Xerox financing to swallow HP, a person familiar with the matter said. The company would likely need to take on at least $20 billion of debt to close the deal, which was reported earlier by the Wall Street Journal. HP’s market capitalization was about $27.3 billion at the close of trading on Tuesday, while Xerox’s was $8 billion, before news broke of the potential deal. Xerox had extended an offer at $22 a share, the Financial Times reported, a premium of about 20% to HP’s close Tuesday, before news of a potential takeover emerged.
HP hasn’t decided whether the Xerox offer is the right deal, according to a person familiar with HP’s thinking. The PC maker doesn’t agree with Xerox on the potential synergies and has concerns about the debt needed for a deal, said the person, who asked not to be identified speaking publicly about internal talks. Even if HP decides a combination is worthwhile, it isn’t convinced Xerox has the relevant experience for a complex merger and doesn’t think Xerox should be the buyer, the person said.
HP, one of the world’s largest printer makers, and Xerox, one of the biggest sellers of photocopiers, are struggling as waning interest in office and consumer printing has blunted both companies’ most profitable businesses. HP also has contended with a stagnant PC market.
Both hardware makers have responded to the changing markets with significant cost-cutting measures. HP’s new Chief Executive Officer Enrique Lores announced another restructuring that could remove as much as 16% of the workforce by the end of fiscal 2022, amid falling sales in its lucrative printer ink business. Xerox said it plans to cut $640 million in expenses this year. The copy-machine company, based in Norwalk, Connecticut, expects a combined Xerox-HP entity could save at least $2 billion in expenses, according to the Journal.
“Financing a $30 billion HP transaction with mostly debt may be challenging for Xerox, but not an insurmountable obstacle,” Robert Schiffman, an analyst at Bloomberg Intelligence, wrote Wednesday in a note.
In its statement, HP expressed confidence in its plan for the future.
“We have great confidence in our multi-year strategy and our ability to position the company for continued success in an evolving industry, particularly given the multiple levers available to drive value creation,” HP said.
Since splitting from server maker Hewlett Packard Enterprise Co. in 2015, HP has avoided big mergers and acquisitions. The company has focused on financial discipline, minimizing debt and returning capital to shareholders in an operating template set by former Hewlett-Packard Co. CEO Meg Whitman. HP did, however, spend $1.05 billion for Samsung Electronics Co.’s printer unit to bolster its presence in the $55 billion photocopier market, where Xerox has excelled.
Separately, Xerox announced Tuesday that it would get $2.3 billion from longtime partner Fujifilm Holdings Corp. for its stake in their joint venture, Fuji Xerox. The U.S. company had indicated since last year that it intended to end its ties with the Japanese company after a complex merger transaction fell apart.