November 18, 2019
While HP’s Board of Directors unanimously rejected Xerox’s unsolicited proposal, determining Xerox’s proposal significantly undervalues HP and is not in best interests of HP’s shareholders, the deal is still on and they keep exploring.
HP Inc. announced that its Board of Directors has unanimously rejected the unsolicited proposal from Xerox Holdings Corporation to acquire the Company.
Following is the full text of the letter that was sent on 17 November 2019 to John Visentin, Xerox Vice Chairman and CEO:
Our Board of Directors has reviewed and considered your unsolicited proposal dated November 5, 2019 at a meeting with our financial and legal advisors and has unanimously concluded that it significantly undervalues HP and is not in the best interests of HP shareholders. In reaching this determination, the Board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsised debt levels on the combined company’s stock.
We have great confidence in our strategy and our ability to execute to continue driving sustainable long-term value at HP. In addition, the Board and management team continue to take actions to enhance shareholder value including the deployment of our strong balance sheet for increased repurchases of our significantly undervalued stock and for value-creating M&A.
We recognize the potential benefits of consolidation, and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox. However, as we have previously shared in connection with our prior requests for diligence, we have fundamental questions that need to be addressed in our diligence of Xerox. We note the decline of Xerox’s revenue from $10.2 billion to $9.2 billion (€9.2 billion to €8.3 billion) (on a trailing 12-month basis) since June 2018, which raises significant questions for us regarding the trajectory of your business and future prospects. In addition, we believe it is critical to engage in a rigorous analysis of the achievable synergies from a potential combination. With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction.
We remain ready to engage with you to better understand your business and any value to be created from a combination.
On behalf of the Board of Directors,
The original letter sent by Xerox was also included in the announcement of the deal rejection and reads as follows:
November 5, 2019
Board of Directors
1501 Page Mill Road,
Palo Alto, California 94304
Attention: Chip Bergh, Chairman
Ladies and Gentlemen:
I want to thank you for facilitating our recent discussions regarding a potential business combination between our two companies. The substantial synergies generated from a transaction are only the beginning of the unique value creation opportunity you and we identified together – enhanced capital allocation, revenue growth, diversification, balance sheet strength and best in class human capital all result from combining our two industry leading companies. Consequently, our Board of Directors fully supports the transaction outlined below. The nature of the opportunity and the moment, combined with the overwhelming support we believe your and our shareholders, employees and other stakeholders will extend to our coming together as one company, furthers our resolve to pursue a potential transaction with you.
Accordingly, we are providing you with the following definitive written proposal to effect the combination of Xerox Holdings Corporation (“Xerox”) and HP Inc. (“HP”):
Our compelling offer represents:
Our preliminary analysis shows a clear path to cost synergies of at least $2.0 billion (€1.8 billion) within 24 months:
Our Board of Directors strongly believes the industry is overdue for consolidation and that those who move first will have a distinct advantage in a secularly declining macro environment. By combining R&D capabilities and financial resources, together we can accelerate the transformation of our businesses and take a leadership role in key growth markets such as: 3D Printing, Digital Packaging and Labels, Graphics, Textile Printing, Workflow Software and IoT Enabled Services.
Our Board of Directors and management are excited about the opportunity to create significant value for both of our shareholders, employees and other stakeholders through this unique combination of our two companies. Please do not hesitate to contact me with any questions. I look forward to hearing from you.
Our offer remains open until Wednesday, November 13, 2019.
Vice Chairman and CEO
Xerox Holdings Corporation
Cc: Board of Directors
Xerox Holdings Corporation
The “Dear John” letter from HP is not the end of the bid, just the start of the next round. Expect Xerox and HP to keep talking and for Xerox to come back with a revised offer that the HP board can reject again, and then Xerox will come back with a third offer that will go to the shareholders. Unless of course, HP puts in a counter bid for Xerox.
One very small shareholder with stock in both companies said he would vote for a Xerox takeover of HP, but not the other way around, citing low confidence in the success of earlier HP takeovers.
Categories : City News