Xerox Considers Takeover Attempt For HP -- WSJ
November 06 2019 - 3:02AM
Dow Jones News
Bid for printer maker would be at a premium to market value of
$27 billion
By Cara Lombardo
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 6, 2019).
Xerox Holdings Corp. has set its sights on a takeover of
personal-computer and printer maker HP Inc., an audacious move that
would unite two fading stars of technology.
Xerox is considering making a cash-and-stock offer for HP, which
has a market value of about $27 billion, according to people
familiar with the matter. The copier maker's board discussed the
possibility Tuesday, the people said.
There is no guarantee Xerox will follow through with an offer or
that one would succeed. HP, which installed a new chief executive
just last week, is more than three times the size of Xerox and any
bid would be at a premium to its current stock price, the people
said.
Working in Xerox's favor: It expects a $2.3 billion windfall
from a deal to sell stakes in joint ventures with Fujifilm Holdings
Corp., which was announced Tuesday along with the dismissal of a $1
billion-plus lawsuit filed against Xerox by the Japanese technology
company.
Xerox has also received an informal funding commitment from a
major bank, known as a "highly confident letter," the people
said.
A deal would join two household names with storied pasts that
have been scrambling to retool their businesses as the need for
printed documents declines. Both companies are in cost-cutting mode
and a union could afford new opportunities to shed expenses -- to
the tune of more than $2 billion, the people said.
Xerox, based in Norwalk, Conn., primarily makes large printers
and copy machines and most of its almost $10 billion in annual
revenue comes from renting and maintaining them for businesses. HP,
based in Palo Alto, Calif., sells mainly smaller printers and
printing supplies and is also one of the largest PC makers in the
world. It posted revenue of more than $58 billion for its most
recent fiscal year, ended in October 2018.
HP is what remains after Hewlett-Packard Co. split off Hewlett
Packard Enterprise Co., which sells servers, data-storage gear and
related services to corporate clients, in 2015. Before a decline in
its printing-supplies business in recent quarters, it had grown
faster than expected as a stand-alone company.
HP's former chief, Dion Weisler, said in August that he was
leaving the company for family-health reasons and would be
succeeded by Enrique Lores. Mr. Lores started as an intern 30 years
ago and had run the company's printer business since 2015. Mr.
Weisler remains on the board.
HP in early October said Mr. Lores would implement a
restructuring plan that would shrink the company's ranks by as many
as 9,000 people, or 16% of its workforce, and yield annual cost
savings of $1 billion. The company outlined plans to revive its
printer business, which tends to have higher profit but has
struggled as customers buy ink cartridges elsewhere.
HP historically sold printers at a loss and then made money
selling ink cartridges for them. A new sales model will attempt to
lock customers into recurring ink purchases for a discount at the
time of printer purchases. It has also been investing in 3-D
printing.
Given businesses' and consumers' declining reliance on the
printed page, bankers consider companies like Xerox, HP and Japan's
Canon Inc. to be primed for consolidation.
HP and Xerox shares have diverged recently.
Xerox shares are up 84% so far this year after the company
launched a cost-cutting program, reported better-than-expected
third-quarter earnings last week and raised its 2019 outlook. The
stock rose by about 5% Tuesday on news of the deal with Fujifilm.
Xerox CEO John Visentin said on its earnings call that the
company's improved cash flow makes it well-positioned to do deals
big and small.
HP shares, meanwhile, are down 10% so far this year. It is
slated to report its fiscal fourth-quarter earnings Nov. 26.
Billionaire investor Carl Icahn owns a 10.6% stake in Xerox. Mr.
Icahn began lobbying for changes at the company in 2015. Two years
later, he launched a board fight, telling The Wall Street Journal
that Xerox "will go the way of Kodak if there aren't major
changes." In 2018, he and Darwin Deason, another major shareholder,
scuttled Xerox's planned merger with Fujifilm, took control of its
board and replaced its CEO with Mr. Visentin.
Fujifilm sued Xerox in June 2018 for breach of contract and
estimated damages of more than $1 billion. Fujifilm's lawsuit
alleged Xerox unlawfully terminated the merger due to pressure from
Messrs. Icahn and Deason, who argued the deal undervalued
Xerox.
Xerox's agreement with Fujifilm to sell its joint-venture stakes
and end the lawsuit allows Fujifilm to continue to be a major
supplier to Xerox.
(END) Dow Jones Newswires
November 06, 2019 02:47 ET (07:47 GMT)
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