Xerox bid could go any which way

Jo Francis
Friday, January 17, 2020

Will they, or won’t they? As this issue of Printweek headed off to press, Xerox and HP were still locked in a tit-for-tat battle of words with HP refusing to engage in discussions.

The dramatic series of events, which began in November last year, is outlined in the boxout. To summarise, Xerox wants to acquire its larger rival in a $33bn (£25bn) deal. HP says that the offer, which is for $22 a share, $17 of which would be in cash, seriously undervalues HP.

Billionaire activist investor Carl Icahn, who takes no prisoners and is known for his aggressive pursuit of whatever he perceives to be the best deal, is the biggest single shareholder in Xerox – it was after all Icahn and fellow investor Darwin Deason who stymied Fujifilm’s plans to buy Xerox back in 2018.

Icahn and associated investment vehicles have also taken a sizeable stake in HP, although this has resulted in a lawsuit from the Miami Firefighters Relief & Pension Fund, a Xerox shareholder, alleging breach of fiduciary duty due to the timing of the share purchase.

The back story for both companies also provides some interesting context. Hewlett Packard split into two firms: HP Inc and HP Enterprise, in 2014. And Xerox followed suit in 2016 when it separated into Xerox and Conduent.

One industry observer believes that if the two companies do eventually come together, a further demerger could form part of the eventual outcome: “My hunch is that the plan is acquire HP, and then spin off its PC business to reduce the debt they [Xerox] have to raise to acquire the business.

“The deal may be difficult to resist for shareholders, and there could be further value for them through a demerger later on,” the source noted.

He added that the combination of HP’s printers with Xerox’s  multi-function devices could be a “holy grail... then you’ve got a pretty dominant force in office and commercial printing”.

Xerox has claimed that a combined product portfolio, including for the $95bn production printing market, would result in “the most complete and competitive portfolio across all segments”.

In the commercial printing arena graphic arts customers of both firms will be watching the outcome of all this with interest.

One user of equipment from both companies said it was “too early to say” how he would view a combined HP-Xerox, and pointed to successful print platforms on both sides. “I would be surprised if they kept everything running. If it happens they’ll take a dispassionate view of what makes the most commercial sense. They’ll know the margins and what makes the most money,” he said.

Both Xerox and HP also have growing activities in the emerging 3D printing market.

Xerox CEO John Visentin – who worked at HP for a couple of years at the beginning of the previous decade – is pitching the merits of the deal to HP shareholders, including a mooted $2bn in cost saving synergies and ‘attach opportunities’ to cross-sell Xerox software to an estimated 10,000 HP Indigo customers, and 50,000 wide-format printer users.

What will happen next in this possible industry mega-merger is anyone’s guess. Some believe it could even end up with HP  buying Xerox.

Whatever which way, big take-overs can bring their own problems, as the then-Hewlett-Packard found to its cost after its disastrous $11bn acquisition of  UK tech firm Autonomy in 2011, and subsequent $8.8bn writedown. The long-running HP Enterprise court case over that particular deal is still going through the courts.

Xerox and HP: the story so far

May 18 Court documents relating to Fujifilm’s stymied takeover of Xerox reveal that HP had expressed an interest in buying Xerox at the beginning of that year

July 18 Fresh Xerox CEO John Visentin pledges to transform the company, asserts that the business has not been put up for sale

Oct 19 HP announces global restructure that will involve shedding 9,000 jobs

Nov 19 Enrique Lores takes over as HP CEO, as planned

Nov 19 Xerox and Fujifilm’s dispute, and Fujifilm’s plans to take over Xerox, conclude with a split and the end of their 60-year-old joint venture

Nov 19 Just days later, it emerges that Xerox could be readying a bid for the much larger HP

Nov 19 Xerox gives HP four weeks to carry out due diligence over its $22-a-share offer

Nov 19 HP board rejects the offer

Nov 19 Xerox hits back at the rejection and threatens to take its offer directly to HP’s shareholders

Nov 19 The war of words hots up: HP says it has concerns about the “near-term health and long-term viability” of the Xerox business

Nov 19 The gloves are off: Xerox takes its proposal directly to HP shareholders, says HP’s refusal to engage in mutual due diligence “defies logic”

Dec 19 Activist investor Carl Icahn sends one of his trademark open letters to HP shareholders

Dec 19 Xerox CEO John Visentin goes on the road to meet HP shareholders

Jan 20 Xerox says it has secured $24bn to finance the deal, sends another letter to HP’s board

Jan 20 HP responds by again rebuffing the approach, saying it significantly undervalues HP…


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