Xerox has moved to bring its attempt to acquire HP to a head by making an offer directly to shareholders to purchase all of the outstanding shares in a deal that would cost in the region of $27bn.
The long-running campaign by Xerox to pick up its rival, which started in November 2019, has created an opportunity for rivals of both vendors to exploit the uncertainty and court resellers concerned by the long-term impact of a tie-up.
Xerox has been clear that although it has a strong heritage in direct selling, it is viewing a tie-up with HP as an opportunity to widen its market reach by working more with the channel.
In a presentation made to shareholders in December, Xerox made it clear that the channel was one of the key considerations in the go-to-market plans for a combined entity. Investors were informed that the combination of both firms and leveraging of “regional manufacturing and distribution efficiencies” could produce benefits in the range of $50m to $100m in the first three years.
“Xerox has a strong direct salesforce, selling both to enterprises and SMBs. HP’s primary route to market is through its indirect channel. Our complementary hardware, software and service offerings paired with our complementary routes to market provide the combined company with an opportunity to increase its total addressable market. Specifically, each can cross-sell the other’s technology into its existing installed base and drive incremental revenue, all while eliminating duplicative SG&A [selling, general and administrative] costs,” the firm stated.
Xerox also indicated that it would consider expanding the availability of its financial services operation to HP’s channel base.
Resellers will have to wait to see if the latest move by Xerox will result in HP’s board and shareholders accepting the offer. The printer giant has been quite clear that it has the financing in place with Bank of America, Citi and Mizuho, generating $24bn. To get the additional funds needed it has added more lenders to that list, including MUFG, PNC, Credit Agricole, Truist and Sun Trust Robinson Humphrey.
“Our proposal offers progress over entrenchment,” said John Visentin, vice-chairman and chief executive officer of Xerox. “HP shareholders will receive $27bn in immediate, upfront cash while retaining significant, long-term upside through equity ownership in a combined company with greater free cash flow to invest in growth and return to shareholders.”
HP’s board confirmed that Xerox had made an unsolicited exchange offer to gain the outstanding shares and it would be taking counsel before reacting.
“The HP board of directors will, consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, carefully review and evaluate the offer to determine the course of action that the board believes is in the best interests of the company and all HP shareholders. HP shareholders are advised to take no action at this time pending the board’s review and evaluation of the offer,” the firm stated.
It added that it would provide shareholders with clarification over its position in the next 10 business days.