Xerox Formally Launches $35B Adversarial Takeover Bid for HP Directed at HP Shareholders

As promised, on March 2, Norwalk, Conn.-based Xerox Holdings launched a $34.9 billion proxy bid to acquire all outstanding shares of HP Inc. for $24 per share (a $2 per share increase above its initial offer), comprising $18.40 in cash and 0.149 Xerox shares for each HP share. Targeted directly at HP shareholders, the unsolicited “hostile takeover” offer and withdrawal rights are scheduled to expire at 5 p.m. ET on April 21, 2020, unless it is extended.

Xerox CEO John Visentin

“Our proposal offers progress over entrenchment,” John Visentin, vice chairman and CEO of Xerox, said in announcing the proxy offer, which will be sent directly to HP shareholders. “HP shareholders will receive $27.33 billion in immediate, upfront cash while retaining significant, long-term upside through equity ownership in a combined company with greater free cash flow to invest in growth and return to shareholders.” (Xerox created a website, XplusHP.com, to help make its case about the benefits of the transaction.)

Xerox also turned up the heat in January by announcing that it nominated a slate of 11 independent candidates to replace HP’s entire board of directors, which will be voted on by HP shareholders at HP’s upcoming 2020 annual shareholder meeting. In addition, it has been courting and meeting with large HP shareholders to endorse the deal.

The investor presentation that Visentin (click here to view his Xerox Shareholder Presentation) has been using to try to gain the direct support of HP’s major shareholders was made public on Dec. 9.

Some of his key arguments included:

• The increased cash flow generated would help pare debt, increase capital returns to shareholders, and drive greater investment in innovation.
• Xerox has a fundamentally different approach to restructuring that focuses on operations and cash flow, not headcount. HP’s approach will have it spending $1 of cash for every $1 of savings and does nothing to streamline HP’s operations for the future.
• Xerox would use its strategic plan to achieve $2 billion of synergies, which would result in a transaction that generates nearly 60% more equity value than HP’s standalone plan would for its shareholders.
• Xerox has a “proven” leadership team and playbook to increase shareholder value. Since developing Project Own It and executing on its initiatives, Xerox’s share price has risen nearly 90% year-to-date (as of Dec. 9, 2019) and the company has saved nearly $1 billion in 18 months. By contrast, HP’s unaffected share price was down by more than 17% since HP announced its new strategy.

HP Board Takes Proactive Measures to Block Hostile Takeover

In response to the March 2 hostile takeover bid, HP’s board of directors advised shareholders to take no action at this time, pending the board’s review and evaluation of the offer. The Palo Alto, Calif.-based company also indicated that it will advise shareholders of its board’s position regarding the offer within 10 business days by filing a solicitation/recommendation statement with the Securities and Exchange Commission (SEC) and publishing it on HP’s website.

The Xerox proposal, according to HP, is flawed because it:

• Exchanges HP stock for cash and Xerox stock at a fundamentally flawed value exchange that does not compensate HP shareholders for the value of HP executing on its strategic plan and transfers value from HP shareholders to Xerox shareholders;
• Uses HP’s balance sheet as transaction consideration and creates an irresponsible capital structure that would jeopardize the future value of the combined company and constrain its ability to invest in growth and innovation; and
• Overstates the potential synergies by including HP’s existing plans for independent cost reductions and productivity gains.

On Feb. 20, the HP board also adopted a Shareholder Rights Plan (“Poison Pill”) to thwart Xerox’s planned hostile proxy bid. According to HP’s press release, the rights plan was designed to encourage Xerox (or anyone else seeking to acquire the company) to negotiate with the HP board prior to attempting to impose some combination that is not in the best interests of the HP shareholders.

More importantly, the rights plan, which will expire in one year, is aimed to stop any investor group — such as activist investor Carl Icahn, who holds a 10.85% controlling stake in Xerox and a 4.24% stock ownership position in HP, or other institutional investors that may be aligned with him — from acquiring more than 20% of HP shares. If that happens, HP investors outside the group will be able to acquire additional HP shares at a discount, essentially diluting the ownership of the group.

HP Inc. CEO Enrique Lores

As a second defense mechanism, on Feb. 24, HP President and CEO Enrique Lores and fellow senior executive announced HP’s “Strategic & Financial Plan for Value Creation” (click here to view a PDF of the investor presentation) to buy back $15 billion worth of HP shares during the next three years (up from $5 billion authorized in October 2019), including acquiring at least $8 billion worth of shares in the 12 months following its 2020 annual shareholder meeting.

In addition, HP said it intends to generate additional ongoing productivity improvements of at least $1 billion by fiscal 2022, making the total return to shareholders valued at more than $16 billion, which represents about half of HP’s market capitalization.

Commentary: Whether Xerox’s acquisition attempt of HP succeeds or fails — or even, as some suggest, HP turns around and ultimately purchases Xerox — the sooner it is resolved the better so both entities, and our industry can move forward. Just like Wall Street investors disdain uncertainty, so do the existing customers, prospective clients, and employees of these two companies, who are all caught in the middle.

It will also put an end to the inaccurate editorializing done by mainstream media when reporting about the battle between these two iconic printing industry players. Case in point: a March 3 Reuters article stated, “The printing industry is in decline as companies and consumers turn to digital documents to save money and help the environment.”

Yes, some forms of print are certainly in decline due to electronic substitution but, as we know, paper is a highly renewable resource, so the “save the environment” argument by going paperless is totally inaccurate. Plus, these widely read articles that continually reference the “shrinking printing industry” further damage our efforts to attract young people for careers in the graphic arts.