HP Inc. says its board has rejected a roughly $33.5 billion takeover offer from Xerox.
The Palo Alto, California-based company said Sunday that the cash and stock deal undervalues its business and its board cited concerns about “outsized” debt levels should the companies combine.
“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,” HP’s management wrote in a letter to Xerox.
“In reaching this determination, the Board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsized debt levels on the combined company’s stock.”
HP, which makes computers and printers, said it recognizes the potential benefits of consolidation and remains open to exploring other options to combine with Xerox Holdings Corp. It is the world’s second largest PC manufacturer behind Lenovo.
“We remain ready to engage with you to better understand your business and any value to be created from a combination,” HP’s letter reads.
Both companies have faced difficulties as the demand for printed documents and ink have waned.
Xerox offered earlier this month to give HP shareholders $17 in cash and a fractional share of Xerox stock for each share they held in HP. They put the total value of the deal at $33.5 billion. If the deal had been completed, HP shareholders would own approximately 48% of the combined company.
HP rejected the offer, saying that it has “great confidence” in its ability to deliver long-term value. Its board also said it had “significant questions” about the trajectory of Xerox’s business and prospects, particularly given a recent decline in its revenue.
A representative for Xerox, which is based in Norwalk, Connecticut, could not be reached immediately for comment.
The letter
Provided by HP, here is the full text of the letter sent to John Visentin, Xerox Vice Chairman and CEO:
Dear John,
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 outsized 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 (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.
