HP Inc declines Xerox offer, but is ready to haggle

HP Inc's board of directors have formally declined Xerox’s $30bn acquisition offer, but it has left the door open for merger negotiations

HP Inc has declined Xerox’s acquisition offer, claiming it “significantly undervalues HP and is not in the best interests of HP shareholders”.

On November 6, HP Inc acknowledged it had received a $30bn takeover bid from rival Xerox.

The company has now formally responded to the acquisition offer with a letter sent on 17 November. The board of directors at HP Inc responded to the acquisition offer with a letter to Xerox vice-chairman and CEO John Visentin, stating: “Our board of directors has reviewed and considered your unsolicited proposal dated 5 November 2019 at a meeting with our financial and legal advisors and has unanimously concluded that it significantly undervalues HP and is not in the best interests of HP shareholders.

“In reaching this determination, the board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsized debt levels on the combined company’s stock.”

While its board of directors said it recognised the potential benefits of consolidation, HP Inc said it had concerns over Xerox’s decline in revenue from $10.2bn to $9.2bn, which HP Inc said “raises significant questions for us regarding the trajectory of your business and future prospects”.

However, HP Inc invited Xerox to engage in a rigorous analysis of the achievable synergies. “With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction,” the HP Inc board wrote in the letter.

Last week, activist investor Carl Icahn told The Wall Street Journal (WSJ) he held a 10.6% stake in Xerox and a 4.26% stake in HP Inc, worth around  $1.4bn. He said merging the two printing firms would lead to “sizeable cost savings”.

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Quoting sources from the two businesses, Bloomberg also reported that Xerox would be ready to offer HP Inc a month for the two companies to undertake a due diligence audit.

Both companies are betting on the commercialisation of three dimensional printing to create new growth opportunities. In a transcript of Xerox’s Q3 2019 results posted on the Seeking Alpha financial blogging site, Visentin said: “The promise of bringing 3D printing for manufacturing has long been a futurist vision for advancing the industry, building on decades of experience in printing and material science, Xerox is turning this vision into a reality.

“The Xerox difference is liquid metal technology and our AI [artificial intelligence] based designed software, which allows manufacturers to make complex parts in hours instead of days without sacrificing quality or strength.”

In a transcript of HP Inc’s Q3 2019 earnings call posted on Seeking Alpha, former HP Inc CEO Dion Weisler gave an update on the company’s Multi Jet Fusion 3D printer. “We also continue to drive installations with industrial-grade customers and are seeing early traction for our Multi Jet Fusion 5200 solution,” he said.

“We are especially pleased to see customers embracing new data and software capabilities to achieve new levels of industrial manufacturing predictability, reliability efficiency and quality.”

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