Would a Xerox Acquisition of HP Really be Good for HP? Not Likely

An interesting comment on LinkedIn noted that in covering Xerox’s takeover bid for HP Inc., many mainstream media stories characterize both companies as “copier and printer dinosaurs.”  The Los Angeles Times for instance, recently called both companies “two doddering old hulks.” Ouch.

More importantly, whether you think Xerox and HP are “dinosaurs,” the more important question is whether a Xerox-HP merger really makes sense. There’s the whole idea, pushed by investor Carl Icahn and loyalists, that such consolidation would be good, saving money, and resulting in a “powerhouse” printer/copier company.

On the other hand, as pointed out in that same Los Angeles Times article written by Michael Hiltzik, both HP and Xerox are now focused on cutting costs.

While cutting costs has helped Xerox’s share price, has focusing on cutting costs ever resulted in the kind of new technology and innovation that both companies need?

It seems very unlikely that harsh cost-cutting – including aggressive job outsourcing –  at Xerox would benefit HP morale and innovation in any way.

And, if you notice elsewhere in the industry, other printer/copier companies aren’t buying each other, they’re buying newer companies that have developed newer-tech offerings in enterprise content management, cloud and IT services that can enhance their office-imaging offerings.

For these reasons, and others, we tend to think an HP-Xerox merger would be particularly bad for HP, as it wouldn’t add innovation to HP and would likely actually hurt innovation at HP. In particular, HP’s industrial 3D-printer business continues with strong and steady growth, with HP now the number-two leader in the industrial 3D-printer market. This business is likely to provide strong growth in the future. But would Xerox want to make investments to capitalize in it?

What’s next? Investor Carl Icahn is likely to try to nominate members to the HP board of directors, and HP shareholders would have the opportunity to vote for or against them most likely at a meeting in April.

Icahn will continue to push an HP-Xerox merger, but, with significant holdings in both companies, it’s safe to say this is just part of his typical game plan to reap huge windfalls. That game plan is: buy low-priced shares in companies that he believes are under-valued, push for divestitures, cost-cutting,  lay-offs, and other measures that boost share prices (typically temporarily), and then sell high. Ultimately, it’s hard to see how any of this will benefit HP.  While HP shareholders might enjoy a windfall themselves if the acquisition goes through, it’s not likely that the merger will ultimately benefit innovation and growth at HP – in fact, the reverse if probably more likely.

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