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HP Xerox: HP’s “trust us” challenged in the courts

March 20, 2020

In another twist and turn in the Xerox – HP takeover bid, HP shareholders challenge the boards “trust us” position.

The class action complaint, filed in the state of Delaware, by James Gould and other HP shareholders against the HP board. The complaint alleges that the board in recommending that HP shareholders reject the Xerox offer, base their recommendation on the inadequacy opinions from Goldman Sachs and Guggenheim Securities, but the board has declined to provide the requisite “fair summary” of the analysis underlying the Inadequacy Opinions on which the Board’s recommendation rests.

Following the Xerox offered to acquire HP on November 5, 2019, the HP Board unanimously concluded that the offer “significantly undervalued HP relative to the Company’s standalone plan and options to deploy its strong balance sheet to generate shareholder value, and that rejecting the November Proposal was in the best interests of HP’s shareholders.”

On November 26, 2019, Xerox sent a letter to HP stating that Xerox planned to engage directly with HP stockholders to solicit their support for the November Proposal and on January 23, 2020, Xerox submitted to HP a notice of the nomination of 11 directors and four alternate director nominees for election to the HP Board at HP’s 2020 annual meeting of stockholders.

On February 10, 2020, Xerox announced its intention to launch a tender offer for all of HP’s outstanding shares of common stock at a nominal price of $24.00 per share, and on February 20, 2020, HP adopted a shareholder rights plan expiring in one year, exercisable if a person or group of beneficial ownership acquires 20% or more of HP’s common stock, subject to certain exceptions. (A “poison pill”)

The complaint cites that under Delaware law, a target board can reasonably use a poison pill to provide stockholders sufficient time to process the information needed to make an informed decision regarding a tender offer.

The complaint alleges that in this situation the [HP] Board itself is the reason why stockholders lack necessary information about the tender offer and that the indefinite application of such a poison pill is improper.

The complaint seeks an order to disclose a full and fair summary of the analysis underlying the inadequacy opinions and the HP directors liable for breaching their fiduciary duties.  The awarding of permanent injunctive relief as well as interest, legal fees, costs and expenses.

Editor’s Opinion: While the Xerox roadshow to promote the merits of the deal to HP shareholders is on hold during the coronavirus pandemic, their offer to HP shareholders remains open. It’s open if the court forces the HP board to disclose the “fair summary” that supports their advice to shareholders. However, expect Xerox to extend the offer period.

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