HP Inc. (NYSE: HPQ) today announced that HP has sent a letter to
Xerox Holdings Corporation in response to Xerox’s November 21, 2019
letter.
Following is the full text of the letter that was sent on
November 24, 2019:
November 24, 2019
John Visentin Vice Chairman and CEO Xerox Holdings Corporation
201 Merritt 7Norwalk, CT 06851-1056
CC: Keith Cozza, Chairman of Xerox Holdings Corporation;
President and Chief Executive Officer, Icahn Enterprises L.P.
Dear John,
The HP Board of Directors has reviewed and considered your
November 21 letter, which has provided no new information beyond
your November 5 letter. We reiterate that we reject Xerox’s
proposal as it significantly undervalues HP. Additionally, it is
highly conditional and uncertain. In particular, there continues to
be uncertainty regarding Xerox’s ability to raise the cash portion
of the proposed consideration and concerns regarding the prudence
of the resulting outsized debt burden on the value of the combined
company’s stock even if the financing were obtained.
Consequently, your proposal does not constitute a basis for due
diligence or negotiation.
We believe it is important to emphasize that we are not
dependent on a Xerox combination. We have great confidence in our
strategy and the numerous opportunities available to HP to drive
sustainable long-term value, including the deployment of our strong
balance sheet for increased share repurchases of our significantly
undervalued stock and for value-creating M&A.
It is clear in your aggressive words and actions that Xerox is
intent on forcing a potential combination on opportunistic terms
and without providing adequate information. When we were in
private discussions with you in August and September, we repeatedly
raised our questions; you failed to address them and instead walked
away, choosing to pursue a hostile approach rather than continue
down a more productive path. But these fundamental issues
have not gone away, and your now-public urgency to accelerate
toward a deal, still without addressing these questions, only
heightens our concern about your business and prospects.
Accordingly, we must have due diligence to determine whether a
Xerox combination has any merit.
We remain prepared to study the potential value of a combination
and to work quickly to learn more about your business
trajectory. However, there are significant concerns about
both the near-term health and long-term viability of your business
that have a significant impact on Xerox’s value. The question
of whether there is a path to turn around your business is a
threshold issue. In addition to the visible and substantial
declines at Xerox, our specific concerns include:
- Xerox has missed consensus revenue estimates in four of the
last five quarters;
- Xerox’s revenue has fallen from $10.2 billion to $9.2 billion
(on a trailing 12-month basis) since June 2018, and this is
expected to continue – Xerox management projects revenue declines
of 6% in fiscal 2019;
- Given how much of your business is based on contractual
revenue, we are concerned about the decline in customer Total
Contract Value (TCV) in excess of revenue declines, which suggests
your revenues may decline even faster in future years. We note that
the TCV of enterprise signings (including renewals) in 2018 was
down 13.9% in constant currency and your churn for 2018 was 18%,
both data points which Xerox has stopped providing publicly since
the end of 2018;
- Our review of synergies based on public information and the
limited information you have shared does not support achievable
synergies of the scale you suggest, and it appears that your
assumptions include significant savings that are already included
in each company’s independently announced cost reduction plans;
and
- It appears to us that when Xerox exited the Fujifilm joint
venture, Xerox essentially mortgaged its future for a short-term
cash infusion. We fear that the exit has left a sizeable
strategic hole in Xerox’s portfolio. In addition, we have
concerns as to the state of Xerox’s technology resources, research
and development pipeline, future product programs, and supply
continuity and capability. Finally, we note that Xerox will
have to get access to the fastest growing Asia Pacific region.
The HP Board of Directors is committed to serving the best
interests of HP shareholders, not Xerox and its shareholders.
HP has numerous opportunities to create value for HP shareholders
on a standalone basis. We will not let aggressive tactics or
hostile gestures distract us from our responsibility to pursue the
most value-creating path.
On behalf of the Board of Directors,
[Signature] |
[Signature] |
Enrique Lores |
Chip Bergh |
Advisors
Goldman Sachs & Co. LLC is serving as financial advisor to
HP, and Wachtell, Lipton, Rosen & Katz is legal advisor.
Forward-Looking Statements
This news release contains forward-looking statements that
involve risks, uncertainties and assumptions. If the risks or
uncertainties ever materialize or the assumptions prove incorrect,
the results of HP and its consolidated subsidiaries may differ
materially from those expressed or implied by such forward-looking
statements and assumptions.
All statements other than statements of historical fact are
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including any statements of expectation or belief, including with
respect to the timing and expected benefits of acquisitions and
other business combination and strategic transactions; any
statements relating to the plans, strategies and objectives of
management for future operations, including, but not limited to,
our sustainability goals, our go-to-market strategy, share
repurchases, the execution of restructuring plans and any resulting
cost savings, net revenue or profitability improvements; any
statements concerning the expected development, performance, market
share or competitive performance relating to products or services;
any statements regarding current or future macroeconomic trends or
events and the impact of those trends and events on HP and its
financial performance; and any statements of assumptions underlying
any of the foregoing.
Risks, uncertainties and assumptions include the need to address
the many challenges facing HP’s businesses; the competitive
pressures faced by HP’s businesses; risks associated with executing
HP’s strategy and business model changes; successfully innovating,
developing and executing HP’s go-to-market strategy, including
online, omnichannel and contractual sales, in an evolving
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maintaining the value proposition of HP’s products, including
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transition of new products and services and the enhancement of
existing products and services to meet customer needs and respond
to emerging technological trends; the execution and performance of
contracts by HP and its suppliers, customers, clients and partners;
the hiring and retention of key employees; integration and other
risks associated with business combination and investment
transactions; the results of the restructuring plans, including
estimates and assumptions related to the cost (including any
possible disruption of HP’s business) and the anticipated benefits
of the restructuring plans; the impact of changes in tax laws,
including uncertainties related to the interpretation and
application of the Tax Cuts and Jobs Act of 2017 on HP's tax
obligations and effective tax rate; the resolution of pending
investigations, claims and disputes; and other risks that are
described in HP’s Annual Report on Form 10-K for the fiscal year
ended October 31, 2018, and HP’s other filings with the Securities
and Exchange Commission.
HP assumes no obligation and does not intend to update these
forward-looking statements. HP’s Investor Relations website
at http://investor.hp.com contains a significant amount
of information about HP, including financial and other information
for investors. HP encourages investors to visit its website from
time to time, as information is updated, and new information is
posted.
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