HP to Buy Back $15 Billion in Stock to Battle Xerox Takeover Bid
February 24 2020 - 4:36PM
Dow Jones News
By Maria Armental
HP Inc. pledged to buy $15 billion worth of stock, with at least
$8 billion of that in the first year, to tackle a hostile takeover
from Xerox Holdings Corp.
HP called Xerox's proposal "a fundamentally flawed value
exchange" that "created an irresponsible capital structure" and
overstates potential savings and productivity gains from merging
the companies.
The Palo Alto, Calif.-based HP on Monday said it was reaching
out to Xerox "to explore if there is a combination that creates
value for HP shareholders that is additive to HP's strategic and
financial plan."
HP disclosed the plans to boost returns to shareholders by some
$16 billion over three years as it reported first-quarter results
and raised profit projections for the year.
The takeover fight has escalated, with HP calling Xerox's
sweetened offer too low and questioning Xerox's financial ability
to follow through, and Xerox saying that it would seek to overhaul
HP's board and take its bid directly to HP shareholders through
what is known as a tender offer.
Xerox most recently raised the offer to $18.40 a share in cash
and a 0.149 Xerox share.
HP, which has pointed at activist investor Carl Icahn as the
driver behind the takeover bid, last week adopted a so-called
poison pill. The poison pill has a trigger of 20% and will expire
on Feb. 20, 2021.
Mr. Icahn owned a roughly 4.3% stake in HP and 11% in Xerox as
of Dec. 31, according to securities filings.
At least two shareholder derivative lawsuits have been filed
over the proposed HP deal, accusing Mr. Icahn of effectively
controlling Xerox and pointing to the Icahn ties of at least five
of the Xerox's current seven members.
In a derivative suit, a shareholder or group of shareholders
typically sues on behalf of a company. Any recovery gleaned by the
plaintiffs then flows back to the company.
For the quarter ended Jan. 31, HP reported a 16% decline in
profit to $678 million, or 46 cents a share. On an adjusted basis,
profit rose to 65 cents a share from 52 cents a share a year
earlier.
Net revenue fell to $14.62 billion from $14.71 billion.
HP had projected a profit of 39 cents to 42 cents a share, or 53
cents to 56 cents a share on an adjusted basis. Analysts surveyed
by FactSet, meanwhile, expected 54 cents a share in adjusted profit
and $14.63 billion in revenue.
HP now expects to make $2.03 to $2.13 a share for the year, or
$2.33 to $2.43 a share on an adjusted basis. It previously
projected $2 to $2.10 a share, or $2.24 to $2.32 a share as
adjusted.
HP said it currently expected the impact from the coronavirus
outbreak to be felt this quarter but not necessarily beyond with
Chinese factories resuming work.
The company said it would support the capital-return program
through cash on hand and available debt capacity, adding that it
remains committed to maintaining its investment-grade rating. Fitch
Ratings Inc. this month changed its outlook to negative, which
indicates a potential downgrade, citing the company's indication
that it would loosen its traditionally conservative financial
policy.
"Any further material M&A (such as acquiring or being
acquired by Xerox) would similarly lead to a weakening of credit
protection metrics," Fitch wrote.
HP ended the quarter with $4.21 billion in cash, down from $4.5
billion as of Oct. 31, and about $4.86 billion in debt.
Write to Maria Armental at maria.armental@wsj.com
(END) Dow Jones Newswires
February 24, 2020 16:21 ET (21:21 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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