Speaking during an investor call accompanying the release of the company’s first-quarter results yesterday (24 February), HP chief executive Enrique Lores said the company still believes that a deal with Xerox is “not in the best interest of HP shareholders”.
But he added the company “is reaching out to Xerox to explore if there is a combination that creates value for HP shareholders that is additive to HP’s strategic and financial plan”.
Lores said Xerox’s current proposal “has a number of fundamental problems”.
The first is a “flawed value exchange”, he said, with the Xerox proposal not reflecting the value of HP.
“The second is that the proposal creates a highly leveraged and irresponsible capital structure.
“The third is a transfer of value from HP shareholders to Xerox shareholders. Their overstated synergies include many of the initiatives and cost saving activities we are already doing. It is important to keep in mind that there is no overlap between Xerox and over 90% of HP’s business.
“In addition, the Xerox proposal uses our balance sheet strength to acquire our company, creating value for Xerox shareholders but not for HP’s.
“HP has grown by $10.5bn [£8.1bn] over the last three years. This revenue growth is meaningfully more than Xerox total company revenue. HP does not need a Xerox combination to create significant value for shareholders.”
Lores went on to outline the company’s latest three-year strategic plan, which he said “shows the standalone value our shareholders can expect from us”.
HP is expecting to grow its operating profit by around $650m. It is looking to cut more than $1bn in structural costs and plans to return $16bn of capital to shareholders for the 2022 fiscal year.
In support, the board has increased its share-repurchase authorisation to $15bn, an increase from the $5bn it announced in October 2019. HP said the increased capital return would be funded by deploying excess cash on HP's balance sheet and available debt capacity.
“Our significant earnings-per-share growth will be driven by the principles I outlined at the beginning; aggressive structural cost reductions and ongoing productivity savings, disciplined management of our personal systems and print businesses to lead in their market, and a more aggressive balance sheet and capital allocation approach,” he said.
Lores added, however, that HP believes “consolidation on the right terms could create incremental upside to this plan for HP shareholders”.
In its Q1 results, HP reported net revenue of $14.6bn, down slightly from the $14.7bn it recorded in the same period last year, primarily due to a 7% decline in printing net revenue. Its net income was $678m, or 46 cents a share, down from $803m, or 51 cents a share, recorded a year earlier.
HP’s share price increased by 6% in after-hours trading following the release of the results, to $23.43.
Last week the company implemented a shareholder rights plan or 'poison pill', that would make it more difficult for Xerox to progress with its hostile takeover bid.
The move followed Xerox’s announcement that it was increasing its offer to HP shareholders to $24 a share, and would launch a tender offer at the beginning of next month.