HP to update on Q1 earnings before responding to Xerox
Wednesday, February 12, 2020
HP wants its shareholders to have “full information” on its earnings and inherent value before it responds to Xerox’s increased bid for the company.
Xerox increased its hostile takeover offer for HP to $24 (£18.48) per share earlier this week, following several previous rejections by HP. It said it would launch a tender offer on or around 2 March 2020 for all of HP’s shares at the new price, which is an increase of $2 per share on its initial $22 per share bid.
The offer, which will be comprised of $18.40 in cash and 0.149 Xerox shares for each HP share, values HP at around $35bn.
But before responding to the new offer, HP said it first wants to share alternative ways to improve shareholder value alongside the release of its Q1 results on 24 February.
In a statement issued yesterday, the company said: “At that time, when out of its quiet period, HP will share additional information about its plan to drive sustainable long-term value for its shareholders, including through the execution of the company’s multi-year strategic and financial plan and the deployment of its strong balance sheet.”
Seeking Alpha reported that Wells Fargo analyst Aaron Rakers thinks Xerox’s increased bid “will likely force HP management to seriously consider” the request for three weeks of due diligence.
But Rakers also reiterated his belief that a takeover would require a $25 per share bid or higher.
"We continue to view Xerox’s year-three run-rate synergy target of $2bn as ambitious and believe that the debt load of the combined entity would be burdensome,” he said.
Xerox’s initial bid for HP, in November 2019, was rejected by HP, which felt it undervalued the business and was not in the best interests of its shareholders.
In January 2020, Xerox obtained $24bn in binding financing commitments to support the proposed transaction. HP rejected the proposal and later that month Xerox nominated a slate of directors to HP’s board to be voted on by HP’s shareholders at its 2020 AGM, the date of which has not yet been set.
At the end of January, HP called Xerox “a company of questionable value” after the business reported a 6.2% revenue drop for 2019 and a 2.2% decline in Q4.
HP’s share price closed at $22.23 yesterday, after climbing as high as $22.67 on Monday following Xerox’s increased bid. Xerox’s shares, meanwhile, closed at $37.51 yesterday, after reaching as high as $38.13 earlier that day.