The HP Board of Directors has rejected a fresh takeover bid from Xerox, saying is “intent on forcing a potential combination on opportunistic terms and without providing adequate information” with its $33.5 billion proposal, which HP described as “highly conditional and uncertain”.
The blistering letter, published Sunday, came after a fresh proposal on November 21 from Xerox that HP said “provided no new information”.
In a sharply worded response, HP’s board said: “There are significant concerns about both the near-term health and long-term viability of your business that have a significant impact on Xerox’s value. The question of whether there is a path to turn around your business is a threshold issue.”
Xerox was first reported to be preparing an audacious bid for the significantly larger HP on November 6, after exiting a 57-year-long joint venture with Japan’s Fujifilm as part of a broader restructuring deal.
(With that move, HP’s board said in the letter, Xerox “essentially mortgaged its future for a short-term cash infusion”).
In the letter published Sunday to Xerox Holdings Corporation chairman John Visentin, HP’s Board wrote: “It is clear in your aggressive words and actions that Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information.
“When we were in private discussions with you in August and September, we repeatedly raised our questions; you failed to address them and instead walked away, choosing to pursue a hostile approach rather than continue down a more productive path. But these fundamental issues have not gone away, and your now-public urgency to accelerate toward a deal, still without addressing these questions, only heightens our concern about your business and prospects.”
The Board added: “We reiterate that we reject Xerox’s proposal as it significantly undervalues HP… In particular, there continues to be uncertainty regarding Xerox’s ability to raise the cash portion of the proposed consideration and concerns regarding the prudence of the resulting outsized debt burden on the value of the combined company’s stock even if the financing were obtained. Consequently, your proposal does not constitute a basis for due diligence or negotiation.”
Like HP, Xerox is struggling with declining print revenue and midway through an aggressive restructuring that includes plans to trim the number of applications it is running from 1,700 to 500, and cut its 8,000 suppliers to 3,000. HP’s new CEO meanwhile has promised to cut 9,000 jobs from the company’s workforce of 55,000 over the next three years. HP says this will save it some $1 billion annually by 2022.
Among the other concerns it raised, were that Xerox has missed consensus revenue estimates in four of the last five quarters; and that total contract value of enterprise signings (including renewals) in 2018 was down 13.9 percent in constant currency “and your churn for 2018 was 18 percent, both data points which Xerox has stopped providing publicly since the end of 2018.”
HP signed off: “We will not let aggressive tactics or hostile gestures distract us from our responsibility to pursue the most value-creating path.”