HP to Buy Back $15 Billion in Stock to Battle Xerox Takeover Bid -- 2nd Update

Date : 02/25/2020 @ 12:58AM
Source : Dow Jones News
Stock : Xerox Holdings Corporation (XRX)
Quote : 17.66  0.0 (0.00%) @ 1:00AM

HP to Buy Back $15 Billion in Stock to Battle Xerox Takeover Bid -- 2nd Update

Xerox (NYSE:XRX)
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2 Months : From Jan 2020 to Mar 2020

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By Maria Armental 

HP Inc. pledged to buy $15 billion of stock, with at least $8 billion of that in the first year, to tackle a hostile takeover from Xerox Holdings Corp.

Palo Alto, Calif.-based HP called Xerox's proposal "a fundamentally flawed value exchange" that would create "an irresponsible capital structure" and overstate potential savings and productivity gains from merging the companies. But HP said it would leave the door open for a potential combination.

Chief Executive Enrique Lores told analysts that HP wasn't focused on who buys whom, but that the main issue for the company is "that the resulting capital structure makes sense for the businesses where we will be operating."

The fight over HP's future amounts to a trial by fire for Mr. Lores, who took as CEO in November amid an ambitious restructuring plan that would shrink the company's ranks by as much as 16%. Soon after, The Wall Street Journal first reported Xerox had its eyes on buying HP.

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. HP shares rose more than 4% in aftermarket trading.

The takeover fight has escalated, with HP calling Xerox's sweetened offer too low and questioning its rival's financial ability to follow through. Xerox has said 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. A poison pill is a common defense to limit share accumulations and ward off a takeover. In HP's case, it has a trigger of 20% and expires 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.

Mr. Icahn didn't immediately return a call for comment.

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 expects the impact from the coronavirus outbreak to be felt this quarter but not necessarily beyond, with Chinese factories resuming work. The company said the outbreak that has caused some factories in China to remain closed for a prolonged period would lead to an estimated 8-cent-per-share earnings hit for HP in the current quarter and dent free-cash flow.

HP 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 19:43 ET (00:43 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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