Xerox Holdings plans takeover bid for HP

HP is more than three times the size of Xerox

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Xerox Holdings Corp. is looking to takeover personal-computer and printer maker HP Inc., according to a report in the Wall Street Journal published on 5 November 2019. Xerox is considering making a cash-and-stock offer for HP, which has a market value of about US$ 27 billion, people familiar with the matter told the newspaper.

HP is more than three times the size of Xerox, and any bid would be at a premium to its current stock price, sources close to the development told the Wall Street Journal. Xerox, on 5 November, announced a deal to sell a 25% stake in Fuji Xerox Co., Ltd. to a subsidiary of Fujifilm. Total after-tax proceeds to Xerox from the transactions will include accrued but unpaid dividends through the date of the closings and are expected to be approximately US$ 2.3 billion. Xerox expects to use the proceeds opportunistically to pursue accretive mergers and acquisitions in core and adjacent industries. At the same time, it reportedly plans to return capital to shareholders and pay down its US$ 550 million December 2019 maturity debt.

According to the Wall Street Journal, Xerox has also received an informal funding commitment from a major bank, known as a ‘highly confident letter.’ Both companies are in cost-cutting mode, and a union could afford new opportunities to shed expenses—to the tune of more than US$ 2 billion, according to industry sources.

In the statement made on 5 November, Xerox also announced the dismissal of a US$ 1 billion-plus lawsuit filed against Xerox by the Japanese company. As our readers will recall, Fujifilm sued Xerox in June 2018 for breach of contract and estimated damages of more than US$ 1 billion. Fujifilm’s lawsuit alleged Xerox unlawfully terminated the merger due to pressure from major shareholders, who argued the deal undervalued Xerox.

Xerox’s agreement with Fujifilm to sell its joint-venture stakes and end the lawsuit allows Fujifilm to continue to be a significant supplier to Xerox, the Wall Street Journal reported.

In terms of share prices, HP and Xerox have diverged recently. Xerox shares are up 84% so far this year after the company launched a cost-cutting program. The company reported better-than-expected third-quarter earnings last week. It raised its 2019 outlook, again as reported by the Wall Street Journal. The stock rose by about 5% on 5 November on news of the agreement with Fujifilm. Xerox CEO John Visentin said on its earnings call that the company’s improved cash flow makes it well-positioned to pursue deals big and small.

HP shares, meanwhile, are down 10% so far this year. The company is expected to report its fiscal fourth-quarter earnings on 26 November.

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