Xerox Readying for HP Integration

Xerox Readying for HP Integration

(JANUARY 29, 2020) Xerox is already planning for the integration of HP, the company said in its full-year earnings presentation yesterday.

“As part of our M&A playbook, we are planning the integration of the two companies so we can move swiftly after closing to realise cost and revenue synergies,” Xerox wrote in its earnings slide deck.

“With respect to our proposed acquisition of HP, the value of this transaction goes beyond economics. The printing industry is decades overdue for consolidation, and the first mover will have a significant advantage,” said Xerox CEO John Visentin during yesterday’s conference call, adding that he had received “positive feedback” from the HP shareholders he had spoken to.

However, a recent note by Morgan Stanley analyst Katy Huberty suggests not all HP stockholders are enthusiastic about the deal. As reported in CRN a few days ago, HP shareholders view a merger with Xerox as a risky move and the $22 per share offer price would need to be increased to offset these potential risks.

Answering a question from Huberty on yesterday’s call, Visentin said he believed that Xerox had some flexibility when it came to securing more debt over and above the $24 billion in committed funding it had already received. However, it seems unlikely that Xerox will raise its offer until it has conducted due diligence – something that is being blocked by HP’s unwillingness to engage in discussions.

For 2019, Xerox reported full-year sales of $9.06 billion, a constant-currency decline of 4.7% versus 2018. Profitability, however, improved as adjusted operating margin grew by 180 basis points to 13.1% – a figure that was boosted by cost savings and a $77 million payment related to its agreement with Fujifilm last year.

HP took the opportunity to weigh in on Xerox’s results, saying they did nothing to alleviate “the fundamental concerns about the continued revenue declines and health” of its suitor. HP also referred to “the inordinate leverage” that a merged HP/Xerox would have under the terms of Xerox’s proposal. - (OPI)