Xerox launches shareholder fight for control of HP

HP on Sunday reiterated its rejection of a tie-up, saying the Xerox offer "significantly undervalues" the company.
HP on Sunday reiterated its rejection of a tie-up, saying the Xerox offer "significantly undervalues" the company.PHOTO: AFP

NEW YORK (AFP, BLOOMBERG) - Xerox said on Tuesday (Nov 26) it would take its hostile takeover offer for HP to shareholders after the computer and printer maker rejected the US$33 billion (S$45 billion) offer.

The copy machine pioneer said it would make its case to shareholders because the HP board "continues to obfuscate and make misleading statements" about the proposed tie-up.

"The potential benefits of a combination between HP and Xerox are self-evident," Xerox chief executive John Visentin said in a letter to HP's board.

"Together, we could create an industry leader - with enhanced scale and best-in-class offerings across a complete product portfolio - that will be positioned to invest more in innovation and generate greater returns for shareholders."

The move sets up a proxy fight for control of HP, a storied Silicon Valley firm that traces its history back to its founding in 1939 by Bill Hewlett and Dave Packard.

Visentin said HP's "refusal to engage in mutual due diligence with Xerox defies logic."

He added that Xerox has made "a compelling proposal - one that would allow HP shareholders to both realize immediate cash value and enjoy equal participation in the substantial upside expected to result from a combination."

HP on Sunday reiterated its rejection of a tie-up, saying the Xerox offer "significantly undervalues" the company.

The HP board of directors said in a letter the offer is clouded by "uncertainty regarding Xerox's ability to raise the cash portion of the proposed consideration."

The current HP was created by the 2016 breakup of Hewlett-Packard, leaving the HP consumer division making printers and PCs, spinning off HP Enterprise for cloud computing and servers.

HP meanwhile on Tuesday gave a profit forecast that topped Wall Street estimates, projecting optimism that a broad restructuring will pay off while spurning Xerox's takeover bid.

Profit, excluding some items, will be US$2.24 a share to US$2.32 a share in fiscal 2020. Analysts, on average, estimated US$2.24, according to data compiled by Bloomberg. In the fiscal fourth quarter, the hardware maker's sales and adjusted profit topped analysts' projections.

"The results show that our strategy is working and we're driving both short- and long-term value creation," HP chief executive officer Enrique Lores said in a press briefing.

Fiscal fourth-quarter revenue came in at US$15.4 billion, little changed from a year ago, and ahead of analysts' average estimate of US$15.3 billion.

HP shares gained about 2.5 per cent in extended trading on Tuesday after the results were announced. Earlier, the stock closed at US$20.06 in New York and has declined about 2 per cent this year.

Xerox has made a move for HP to consolidate the printing business at a time when both companies are stumbling. HP's printing division, a major source of profit, has seen falling sales because of weaker demand for ink supplies. HP has announced a major restructuring to stabilize the company, which could result in as much as a 16 per cent reduction of its workforce by the end of fiscal 2022.

"Related to Xerox, I feel like we have seen this movie before when Carl Icahn meddled with Dell in a similar way," said Patrick Moorhead, an analyst at Moor Insights & Strategy. "Xerox is a third of the size of HP, has been steadily declining in revenue, is running out of options, and needs HP more than HP needs it."

In the period ended Oct 31, HP's sales in the printing division fell 6 per cent to US$4.98 billion, with ink supplies dropping 7 per cent. Consumer revenue declined 10 per cent and commercial sales decreased per cent.

"We continue to lead in a tough market," Lores said of the printing industry. "We continue to grow in the categories that we consider important," such as managed print services and instant-ink delivery services.

Revenue from personal computers increased 4 per cent to US$10.4 billion, with 8 per cent growth in commercial revenue offsetting a 4 per cent decline in consumer sales. Corporate clients are upgrading their computers to adopt Microsoft's Windows 10 operating system.