American printing tech giant Xerox (NYSE: XRX) today announced a hostile takeover attempt of HP, launching a tender offer valued at $35 billion. The mixed bid values every outstanding HP Inc. (NYSE: HPQ) share at $18.40 in cash and $5.60 worth of Xerox stock – 0.149 a piece. Shareholders have until the end of trading on April 21 to respond to the tender, a Xerox spokesperson confirmed.
$27 billion in cash not enough for HP?
By putting forward roughly $27 billion in cash and $8 billion in equity ($24 per share), Xerox is undertaking a somewhat conservative buyout proposal, offering HP investors a mere 15% premium on their stock. For reference, that’s approximately how much HP shares were going for a year ago, whereas the now-official bid is in the same ballpark Xerox was teasing in late February.
Hewlett-Packard’s management hence isn’t impressed by the tender offer. Last Tuesday, it told investors that it’s already clear the unsolicited suitor is grossly undervaluing HP. Instead of selling out, the technology behemoth plans to bolster shareholder value through improved 2020 dividends which will amount to $16 billion in total. Naturally, the HP board still has a fiduciary duty to honestly consider the Xerox-initiated advance. That’s precisely what it intends to do over the following ten days, according to its prompt Monday response to the offer.
The California-based firm saw its value jump by some $1.5 billion to $31.33 billion in the immediate aftermath of the hostile takeover attempt. Nonetheless, HP already dissected the long-touted offer last week, asserting Xerox employed a “fundamentally flawed value exchange” to reach the $35 billion figure. Additionally, it accused the suitor of proposing a highly irresponsible structure of a hypothetical combined entity due to its obsession with HP’s balance sheet.
The trifecta of criticism is completed by HP’s outlook on potential buyout synergies which Xerox expects to reach $3 billion. Not only does the printing juggernaut claim those benefits are overstated but argues the math behind the figure largely ignores its already greenlit savings strategy for 2020 and beyond.
Today’s unsolicited bid is just the latest episode in nearly a year-long saga starring Xerox and HP. The latter has been successfully resisting the former’s advances even as its suitor grew increasingly more aggressive since mid-2019. HP hence has to be liking its current chances to maintain that status quo basically indefinitely, proxy war or not. At the end of the day, hostile takeovers are a big boys’ game and industry dinosaur Xerox is but an underdeveloped babe compared to the nearly ten times larger HP.
Update, March 13th: Xerox suspended its HP coup attempt in response to the snowballing COVID-19 outbreak that’s now mortally threatening millions of Americans.
Update, March 25th: Xerox appears to have scratched its consolidation itch by inking a sudden double merger with Altodigital and ITEC Connect, taking many industry watchers by surprise.
Update, March 27th: HP confirmed any possibility of a near-term Xerox merger is frivolous at best and laughable at worst given the current market instability and coronavirus-related risks.
Author: Dominik Bosnjak