Mergers & Acquisitions

Xerox Ups Offer for HP, But Is It Enough?

Xerox Holdings on Monday announced a sweetened tender offer for HP at about $24 a share, or $34 billion.
Vincent RyanFebruary 10, 2020

Xerox Holdings on Monday announced a sweetened tender offer for HP at about $24 a share, or $34 billion, an increase of about $2 per share from its previous bid.

Xerox called its proposal “compelling” and said it would allow HP shareholders “to realize immediate cash value and enjoy approximately equal participation in substantial future upside.”

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HP’s board already rejected a bid by Xerox in November 2019, but Xerox said in the press release announcing the higher offer that HP’s largest stockholders “consistently state that they want the enhanced returns, improved growth prospects, and best-in-class human capital that will result from a combination of Xerox and HP.”

Xerox also said that any synergies realized in a combination of Xerox and HP would be “incremental to any value that HP can create by revising its strategic plan or dramatically changing its capital allocation policy to incorporate additional share repurchases.”

HP announced in October 2019 that it will cut between 7,000 and 9,000 jobs by the end of fiscal 2022 as part of a broader restructuring plan that it estimates will save $1 billion a year. Through synergies, Xerox says it can produce $2 billion of run-rate savings within 24 months.

As of 12:56 p.m. Eastern time, HP had not issued a statement in response to Xerox’s new bid.

Xerox’s new offer is comprised of $18.40 in cash and 0.149 Xerox shares for each HP share. It is based on Xerox’s closing share price of $37.68 on February 6. The headline offer price of $24 per share represents a 41% premium to HP’s unaffected 30-day, volume-weighted average trading price of $17, Xerox pointed out.

However, the offer is slightly below HP’s 52-week high of $24.09 and nearly $2 per share off HP’s three-year high.

In unanimously rejecting Xerox’s proposal in November, HP’s board of directors argued that the offer undervalued HP and wasn’t in the best interest of shareholders.

The tender offer will be launched on March 2. Xerox said in December that it plans to nominate 11 independent candidates to HP’s board. The board candidates include Kim Fennebresque, former chief executive of Cowen Group; Jacob Katz, former chairman of Grant Thornton; and former senior executives from Aetna, United Airlines, Hilton Hotels, Novartis, and Verizon.

“These nominations are a self-serving tactic by Xerox to advance its proposal, which significantly undervalues HP and creates meaningful risk to the detriment of HP shareholders,” HP said at the time.

Activist investor Carl Icahn, who has a 4.2% stake in HP and a 10.9% stake in Xerox, has urged HP shareholders in favor of the merger to reach out to the board.

HP’s market cap is more than $30 billion more than three times that of Xerox, but Xerox says it has already lined up financing for the deal.

HP shares rose 1.4%, to $22.05, on the news, while Xerox shares were up 1.3%.

Photo by Justin Sullivan/Getty Images