HP Rejects Xerox Exchange Offer

HP Rejects Xerox Exchange Offer

(March 5, 2020) The board of HP Inc is unanimously recommending that its shareholders do not tender their shares in relation to Xerox’s recent acquisition proposal.

Xerox launched a tender offer for HP shares earlier this week, saying it provided “progress over entrenchment”. HP had given itself ten business days in which to respond, but has come back with its rejection much sooner than that.

“Our message to HP shareholders is clear: the Xerox offer undervalues HP and disproportionately benefits Xerox shareholders at the expense of HP shareholders,” said HP Chairman Chip Bergh.

He continued: “The Xerox offer would leave our shareholders with an investment in a combined company that is burdened with an irresponsible level of debt and which would subsequently require unrealistic, unachievable synergies that would jeopardize the entire company.”

HP CEO Enrique Lores added: “At HP, we’re creating value, not risk. HP is a trusted brand with a strong track record of value creation and we’re executing a clear plan that will drive significant earnings growth. We’re well-positioned in our categories, aggressively attacking costs and pursuing the most value-creating path for our shareholders.”

HP gave a list of the reasons for its board’s recommendation. They include:

  • The Xerox offer, in effect, principally offers HP shareholders something they already own, and would disproportionately benefit Xerox shareholders relative to HP shareholders.
  • The Xerox offer would use HP’s balance sheet as transaction consideration for the benefit of Xerox shareholders.
  • The Xerox offer meaningfully undervalues HP by failing to reflect the full value of HP’s assets and its standalone strategic and financial value creation plan.
  • HP has a track record of execution that has resulted in strong, consistent operational and financial performance.
  • The HP board believes that HP’s standalone plan has positioned HP for significant value creation.
  • HP’s strong balance sheet and financial flexibility provide multiple levers for value creation.
  • The HP board believes that the Xerox offer would compromise the future of HP and the value of shares of HP common stock by transferring value to Xerox shareholders and leaving HP shareholders with an investment in a combined company with an irresponsible capital structure, premised on unrealistic synergies estimates.
  • HP believes that Xerox’s ‘synergy’ estimates, including cost cuts, exceed reasonably achievable levels.
  • The Xerox offer includes a significant equity component, the value of which the HP board believes would be subject to significant risks and uncertainties.
  • Xerox does not have experience operating businesses in the sectors in which HP operates, including within Personal Systems, home printing, and 3D and digital manufacturing.
  • Xerox has been experiencing declining sales and the recent sale of its interest in the Fuji-Xerox joint venture raises significant concerns about its future position.
  • HP believes that Xerox’s cost-cutting has come at the expense of long-term value creation, and Xerox has demonstrated a lack of focus on research and development.
  • The quantity and nature of the conditions of the Xerox offer create significant uncertainty and risk.
  • The HP board believes that Xerox’s urgency in launching the offer, while simultaneously running a full slate of director nominees for election at HP’s 2020 annual meeting of shareholders, evidences Xerox’s desperation to acquire HP to address its continued business decline.
  • The HP board has received an inadequacy opinion from each of Goldman Sachs and Guggenheim Securities.

In a letter to HP staff, Lores said the board had spoken to many HP stakeholders since last week’s announcement of its ‘value creation plan’. “We have received positive feedback, with people pointing to our technology, our portfolio and our people as significant sources of competitive advantage,” he noted.

He continued: “Despite today’s rejection, the process with Xerox is not over. It is likely they will take additional steps seeking to advance their offer, and you will continue to see news coverage about it. It is important that we all keep our ‘eyes on the ball’, focus on our priorities, and not be distracted from the important work in motion. That’s exactly what we did in Q1, and I know you will keep charging forward.” - (OPI)