Xerox Makes New Offer, Appeals Directly to HP Shareholders

Xerox management is directly appealing to HP Inc. shareholders in its bid to acquire HP, publishing a letter to HP shareholders that states HP shareholders would receive $17 per share in cash, which equals 100 percent of HP’s 30-day share price, as well as 48 percent of the new combined company, which Xerox believes would be worth approximately $14 per share. According to Xerox, that would mean HP investors would be getting $31 per share. Xerox had initially offered $22 per share revenue synergies.

In a presentation, Xerox is requesting three weeks of mutual diligence “to verify assumptions and reveal other value creation opportunities.” It also stated there will be no financing condition to closing the transaction, and no anticipated regulatory impediments.

Criticizes HP Restructuring Plan

The presentation also criticized HP’s recently announced restructuring plan, citing investment analysts who state they believe it will create minimal cost savings.  HP’s restructuring plans aims for $1.0 billion in cost savings by fiscal-year 2022.

Xerox also states that, based on a Wall Street consensus, expected annual revenue for Xerox is $8.7 billion, and $58.1 billion, but a combined HP-Xerox would generate $66.8 billion. It also forecasts that a combined company would generate $2 billion in cost savings/scale in the first 24 months. It  notes that its Project Own It delivered $1 billion in cost savings in 18 months.

Among its strategies for achieving $2 billion in cost savings, Xerox says it would implement workforce optimization, shared service centers, vendor consolidation, streamlining of common functions, and consolidation of facilities.

The presentation notes that while HP is a market leader in four segments – home, A4 office, production, and packaging, it would be complemented by Xerox’s strengths in A3 office, managed services, entry production, mono production, and B3 color cut-sheet – areas that are gaps in HP’s portfolio. It also says HP could benefit from Xerox’s direct sales force, as HP’s current channel is the indirect channel. Xerox estimates that selling into each other’s installed base can result in from $540 to $750 million over three years.

“Specifically,” notes the presentation, “each can cross-sell one another’s
technology into its existing install base and drive incremental revenue, all while eliminating duplicative SG&A costs.”

Our Take

By appealing directly to HP shareholders in its bid to acquire HP, Xerox – which basically refers in this case to Xerox investor Carl Icahn and Icahn loyalists on the Xerox board – is attempting to bypass the HP board, which so far has refused to be purchased by Xerox.

What’s next? Icahn is a minority investor in HP at this point, with a 4.24 percent of HP shares. In the past, Icahn has pressed – and often sued – to appoint members loyal to his interests to a company board. Icahn doesn’t yet have enough shares to do this with HP, but if he purchases additional shares – or persuades majority investors that include Vanguard, Black Rock, and others to combine with Xerox, he would then be able to appoint members to the HP board that would approve a sale to Xerox.

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