Xerox, HP Shares Rise Amid Potential Deal
November 06 2019 - 12:55PM
Dow Jones News
By Patrick Thomas and Cara Lombardo
Shares of Xerox Holdings Corp. and HP Inc. rose after The Wall
Street Journal reported on a possible tie-up of the legacy
technology companies.
Xerox has made a cash-and-stock offer for HP, a big
personal-computer and printer maker, people familiar with the
matter said Wednesday. The Wall Street Journal reported late
Tuesday that a bid might be forthcoming.
On Wednesday morning, shares of HP were up 12%, while Xerox
shares were up 1.7%, in a sign that shareholders of both companies
might approve of a union.
HP, which had a market value of about $27 billion as of
Tuesday's close, is significantly larger than Xerox, whose market
capitalization was about $8 billion. The bid includes a takeover
premium and is less than $23 a share, the people familiar with the
matter said. HP stock closed Tuesday at $18.40.
The big question now is how receptive HP is to the offer. The
company hasn't made any public comment about the overture.
A deal would join two household names with storied pasts that
have been trying 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, according to people familiar with the
matter.
JPMorgan Chase & Co. analyst Paul Coster said in a research
note that the deal looks feasible and has merit, adding that Xerox
Chief Executive John Visentin is well-equipped to cut costs and
restructure a combined company. He said a merged entity could
innovate faster. The drawbacks, however, would be the size and
complexity of the deal, he added.
"The combined company will still be confronted with the
challenge of mid-single-digit secular decline in printing industry
revenues," Mr. Coster said. "Execution of cost synergies could take
2-3 years to realize, and there are risks associated with the
undertaking."
Billionaire investor Carl Icahn, who owns a 10.6% stake in Xerox
and along with a partner controls its board, will likely play a big
role in the outcome.
"The question now is whether Icahn (or someone else) is also on
the other side and in a position to put pressure on [HP's] new CEO,
Enrique Lores," Gordon Haskett analyst Don Bilson said in a
research note. Mr. Bilson also said that should HP not be
receptive, the window for a shareholder to launch a proxy fight for
board seats opens on Christmas.
Should Xerox acquire HP, it could be the second recent example
of Mr. Icahn orchestrating a deal in which the buyer is smaller
than the seller. Eldorado Resorts Inc. in June agreed to acquire
Icahn-backed Caesars Entertainment Corp., which is twice its size,
for roughly $9 billion.
Write to Patrick Thomas at Patrick.Thomas@wsj.com and Cara
Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
November 06, 2019 12:40 ET (17:40 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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