Xerox to End Hostile Takeover Bid for HP
March 31 2020 - 4:29PM
Dow Jones News
By Cara Lombardo
Xerox Holdings Corp. is pulling the plug on its hostile bid to
buy larger rival HP Inc. after the coronavirus pandemic undermined
the copier maker's ability to pull off the debt-laden merger.
Xerox plans to end both its more than $30 billion tender offer
and a proxy fight to replace the printer and PC maker's board,
people familiar with the matter said. Xerox has concluded it is no
longer prudent to pursue the deal given the public health crisis
and resulting market swoon, the people said.
The move puts the kibosh on one of the biggest mergers in the
works and underscores the blow that the coronavirus has dealt to
the world of deal making.
It marks the end of a five-month-long offensive by Xerox, kicked
off when its offer became public in early November after the two
companies had earlier explored a combination quietly but failed to
come to an agreement. HP has repeatedly rebuffed its rival since
then, rejecting Xerox's latest cash-and-stock offer of $24 a share
and an earlier one as insufficient and too risky given the amount
of debt involved.
Xerox's move to buy a company more than three times its size was
always going to be a challenge, but at the outset the company was
in a stronger position than it is today. It had cash coming in from
the sale of its joint venture with Fujifilm Holdings Corp. and its
stock had been rising as it continued to cut costs.
Both companies' shares are trading lower than they were a month
ago as the virus spreads, though the damage has been worse for
Xerox. HP's market value has fallen to around $25 billion, just
below where it had been before the bid emerged, while Xerox's has
roughly halved, falling to around $4 billion. That has reduced the
value of its bid to about $31 billion, from $35 billion
previously.
Xerox, which has around $3 billion of long-term debt, planned to
borrow up to $24 billion for the bid, securing loan commitments for
the merger partially based on HP's relatively low long-term debt of
less than $4 billion.
The development comes more than two weeks after Xerox said it
was pausing efforts to meet with HP shareholders to push its bid so
it could focus on responding to the virus.
The proposed deal had the backing of activist investor Carl
Icahn, Xerox's largest stakeholder with a roughly 11% stake who
also owns more than 4% of HP.
The two companies excel in different areas of the market, with
Xerox better-known for large printers and HP bigger in PCs as well
as desktop printers and supplies. Xerox had argued that a
combination could yield annual cost savings of more than $2 billion
that would help them weather an overall industry decline.
HP has questioned the cost-savings estimate and put forward its
own plan to buy back $15 billion of stock. It hasn't said whether
the recent market downturn has changed those plans.
Last week, HP scheduled its annual meeting -- and the
shareholder vote on the competing board slates -- for May 12. Xerox
had pushed to replace the board with its own nominees in an effort
to bring HP to the negotiating table.
Had Xerox chosen to continue its proxy fight, it would have
needed to court HP shareholders in the weeks leading up to the
vote. That task would have been complicated by widespread
social-distancing guidelines making in-person meetings impossible
and the fact that investors are focused on crisis response at their
own firms.
Xerox and HP, led respectively by John Visentin and Enrique
Lores, will face many of the same challenges as separate companies
that they would have as one. The printing industry has been
declining as people and businesses depend less on paper documents
and newer technologies such as 3-D printing fail to offset the
drop, leaving the companies little choice but to focus on paring
costs.
Write to Cara Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
March 31, 2020 16:14 ET (20:14 GMT)
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