Xerox Takeover Bid Rejected by HP

Xerox Takeover Bid Rejected by HP Main Article Image

Office Supplies Blog has learned that the Xerox takeover bid confirmed to have been submitted to HP last week has been formally rejected.

You may remember that in our article posted last week, we followed up on the rumour of a Xerox takeover bid for HP.

In a formal announcement made by HP and detailed in full by The Recycler, we can now confirm that that the Xerox takeover bid has now been unanimously rejected by HP’s Board of Directors.

It was reported that Xerox had presented HP with a four-week period in which to respond to their acquisitional offer, but HP’s current CEO, Enrique Lores, has since penned a letter to Xerox Vice Chairman and CEO, John Visentin, confirming a rejection of the deal.

HP’s Letter to Xerox

Citing that the proposal would “significantly undervalue HP” and was “not in the best interest of HP’s shareholders”, Lores listed further why the current Xerox takeover bid was not substantial enough in order to be of interest to the company.

The letter sent by Lores continues:

“Our Board of Directors has reviewed and considered your unsolicited proposal dated November 5, 2019 at a meeting with our financial and legal advisors and has unanimously concluded that it significantly undervalues HP and is not in the best interests of HP shareholders.

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 have great confidence in our strategy and our ability to execute to continue driving sustainable long-term value at HP.

In addition, the Board and management team continue to take actions to enhance shareholder value including the deployment of our strong balance sheet for increased repurchases of our significantly undervalued stock and for value-creating M&A.”

Second Xerox Takeover Bid Expected

Despite this first rejection from HP, many are expecting that Xerox will return to HP with a second revised offer in order to successfully combine both companies.

This is due in part to the second half of Lores’ letter leaving much of a deal between the two companies still on the table, providing some renegotiation takes place and a revised valuation of HP’s business amenities is considered.

Lores writes:

“We recognize the potential benefits of consolidation, and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox.

However, as we have previously shared in connection with our prior requests for diligence, we have fundamental questions that need to be addressed in our diligence of Xerox”

Lores then goes on to mention the decline of Xerox’s overall revenue since June 2018 and enforces that it is now critical for HP to further analyze how an agreeable synergy can be reached between the two companies from the creation of a potential business combination.

What Happens Next?

With the letter detailing how HP are still open to discussions regarding a merger, we can expect to see the announcement of a second Xerox takeover bid being lodged within the next few days or within the next few weeks.

Whether HP will accept Xerox’s follow-up proposal remains to be seen, but if their second offer further diminishes the overall value of the HP business structure, HP could begin looking elsewhere in terms of potential investment opportunities.

In an interesting viewpoint on the current situation, Printweek reports that their recent online poll on whether the merger between Xerox and HP would be beneficial for the rest of the print industry states that 56.48% of the 400 respondents voted that the two companies combining would not be a good thing.

Additionally, 23.47% voted that it would prove to be a good thing for the two business giants to combine, with 20.05% not sure on the exact effect it would have.

It’s uncertain as to if public opinion and outside sources will have influence on HP’s decision when the next Xerox takeover bid arrives, but the proposition remains to be a huge talking point right now in the business landscape.

Sam Rose