HPQ HP Inc

Xerox's purchase bid of $35 billion is called too low, while adding 'irresponsible' debt

By Dave Sebastian 

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 (March 6, 2020).

HP Inc. rejected Xerox Holdings Corp.'s $35 billion bid to take over the maker of printers, printer supplies and personal computers, again deeming the offer as too low.

HP on Thursday said a combination would disproportionately benefit Xerox shareholders and that Xerox doesn't have the operational experience in HP's sectors, such as personal systems, home printing and 3D and digital manufacturing.

Xerox didn't respond to a request for comment.

Xerox this week launched an effort to acquire all HP shares outstanding, valuing HP at nearly $35 billion, or $24 a share in cash and stock. It had raised the offer from $22 a share. HP said the value of the offer's equity component poses a risk to the company and would lead to uncertainties.

The offer would leave Xerox "burdened with an irresponsible level of debt and which would subsequently require unrealistic, unachievable synergies that would jeopardize the entire company," HP Chairman Chip Bergh said.

HP, based in Palo Alto, Calif., said Xerox's proposed cost-cutting measures in the prospective combined company is shortsighted and that its cost-saving estimates exceed reasonable levels. It said Xerox's declining sales and its recent sale of its interest in the Fuji Xerox joint venture raise concerns about the company's future position.

HP also said it received inadequacy opinions from Goldman Sachs & Co. and Guggenheim Securities this week.

HP President and Chief Executive Enrique Lores and Xerox Vice Chairman and Chief Executive John Visentin have discussed scheduling an in-person meeting next week to explore ways to revise the deal terms, HP said in a securities filing Thursday. The two men had spoken earlier this week, HP said.

In an interview with CNBC, Mr. Lores said his company remains open to combining with Xerox.

"We need to agree on what are the right valuation of the two companies, we need to make sure that the merged entity will have the right capital structure and that the synergies are realistic," Mr. Lores said. "We really need to agree on the three terms before we discuss what will be the best way of putting the two companies together."

The two companies dominate different areas of the printer market and have both been cutting costs as the need for printed documents declines. Xerox, which is based in Norwalk, Conn., primarily makes large printers and copy machines and generates revenue from renting them to businesses and maintaining the devices. HP mainly sells smaller printers and printing supplies, and it is also one of the biggest PC makers in the world, though its printer business is more lucrative.

A deal would combine those household names that have been trying to reorient their businesses. Xerox has argued that a combination could equip the companies to overcome those declines, potentially yielding savings of more than $2 billion. The proposed deal has the backing of activist investor Carl Icahn, who has stakes in both companies.

HP, which had a market value of $30.96 billion as of Wednesday's close, is significantly larger than Xerox, whose market capitalization was about $7.17 billion.

HP last week said it would buy back $15 billion of its stock as it worked to block Xerox from taking over. Xerox has said it plans to nominate 11 independent candidates to replace HP's board at the HP's annual shareholder meeting this summer.

Xerox shares fell more than 6% Thursday, while HP shares were down about 0.3%.

Write to Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

March 06, 2020 02:47 ET (07:47 GMT)

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