November 8, 2019
At a reportedly $22 (€19.94) offer per share the Xerox offer is a premium above recent trading for the HP printer and PC business and would give a modest boost to my pension fund as I saunter towards retirement, said David Connett.
Former Editor and Publisher, David Connett shares his view on this potential deal.
My take is that it is, in general, good news and here is why.
The market is contracting and for all the reasons you know people are printing less. Do not get me wrong, the paperless office is still light years away from arriving, but with a few notable exceptions, we are printing less in general.
Office print technology is old, and while we all earn a living from office print technology, it is not exciting anymore. OEMs are not making the returns they used to, and the savvy OEM shareholders know that the glory days of growth are behind us and consolidation is coming. With consolidation, the dividend payout will be the shareholders’ reward for loyalty and endurance.
In Europe, the reuse agenda is significant and slowly but surely green procurement, reuse, a growing dislike for single-use products are all driving the reuse message with legislators and consumers alike.
In the office print sector reuse and remanufacturing are in permanent flux. A case of my product is better than your product. The reality is reuse in Europe will grow, and this will impact on new product manufacturing, and here I am not just talking about toner and ink cartridges, but the whole office print technology spectrum.
Printer OEMs will have to embrace all sorts of revenue models to deliver shareholder value in the future. Remanufacturing for reuse has to be a model at the centre of their thinking. They have the innovation and capacity to make remanufacturing for reuse work. The leaders are Xerox, Ricoh and Lexmark and manufacturers who embrace remanufacturing for reuse will be at the forefront of Europe’s green procurement agenda.
The motor industry is a prime example of how manufacturer, remanufacture and independent service providers can successfully collaborate and work together. The motor industry model could be the template to bring the office print manufacturers and remanufacturers together, but there has to be a will on the part of the OEM.
HP has the largest market share in Europe and is not a fan of remanufacturing for reuse, so there would be no upside if HP took over Xerox. Whereas Xerox does remanufacture its technology and does manufacture toner for the aftermarket and actively wants to be in all sectors of the market. An ideal candidate to lead a remanufacturing for reuse programme.
In M&A corporate psychology, when a company wants to take over another company, the reasons are all good and virtuous. The reality takeover cultures (good and bad) is that they are transposed into the company that is being taken — drowning out the very essence of why the takeover happened.
Why HP taking over Xerox won’t work: look at the HP takeovers in recent years: Compaq was described by ZDNET as is the worst merger ever. Then, of course, there is the amazingly incredible disastrous Autonomy deal. Buying the Samsung printer business was a good move. However, HP insiders tell me the integration is still not finished and in the meantime to new broom is planning a further reorganisation.
Xerox, on the other hand, has successfully acquired twenty-eight companies in the last five years and would bring the Xerox culture to HP and will be able to transform the business, strip out costs and be a force in the office print sector ahead of any Japanese OEM consolidation. They will have to do that to make the organisation profitable, generate strong cashflows and pay down debt to deliver a healthy dividend to Xerox shareholders.
Sorry, it is a long article, but I think the takeover could be great for remanufacturing for reuse and the independent sector. But will the HP board go for it? Do turkeys vote for christmas? The key is the institutions and shareholders. If Xerox can demonstrate a shareholder windfall and a stronger long-term dividend return, the deal will happen.
Tags: HP, Xerox, M&A, Takeover
Categories : Around the Industry