HP Board: 15 Reasons Why HP Shareholders Should Reject Xerox $34.9B Acquisition Offer
Not surprisingly, HP Inc. issued a release March 5 indicating why Xerox Holdings' recent unsolicited $34.9 billion proxy bid to acquire all outstanding shares of HP Inc. for $24 per share (a $2 per share increase above its initial offer) — comprising $18.40 in cash and 0.149 Xerox shares for each HP share — is not in the best interests of HP shareholders.
“Our message to HP shareholders is clear: the Xerox offer undervalues HP and disproportionately benefits Xerox shareholders at the expense of HP shareholders,” Chip Bergh, chair of HP’s board of directors, said. “The Xerox offer would leave our shareholders with an investment in a combined company that is burdened with an irresponsible level of debt and which would subsequently require unrealistic, unachievable synergies that would jeopardize the entire company.”
"At HP, we’re creating value, not risk,” Enrique Lores, HP’s president and CEO, added. "HP is a trusted brand with a strong track record of value creation and we’re executing a clear plan that will drive significant earnings growth. We’re well positioned in our categories, aggressively attacking costs and pursuing the most value creating path for our shareholders."
(On Feb. 24, Lores and fellow HP senior executive also announced their "Strategic & Financial Plan for Value Creation." Click here to view a PDF of the investor presentation).
Here are the 15 primary reasons the HP board gives why shareholders should reject the Xerox takeover bid:
- The Xerox offer, in effect, principally offers HP shareholders something they already own, and would disproportionately benefit Xerox shareholders relative to HP shareholders.
- The Xerox offer would use HP’s balance sheet as transaction consideration for the benefit of Xerox shareholders.
- It meaningfully undervalues HP by failing to reflect the full value of HP’s assets and its standalone strategic and financial value creation plan.
- HP has a track record of execution that has resulted in strong, consistent operational and financial performance.
- The HP board believes that HP’s standalone plan has positioned HP for significant value creation.
- HP’s strong balance sheet and financial flexibility provide multiple levers for value creation.
- The HP board believes that the Xerox offer would compromise the future of HP and the value of shares of HP common stock by transferring value to Xerox shareholders and leaving HP shareholders with an investment in a combined company with an irresponsible capital structure, premised on unrealistic synergies estimates.
- HP believes that Xerox’s “synergy” estimates, including cost cuts, exceed reasonably achievable levels.
- The Xerox offer includes a significant equity component, the value of which the HP board believes would be subject to significant risks and uncertainties.
- Xerox does not have experience operating businesses in the sectors in which HP operates, including within Personal Systems, Home Printing, and 3D and Digital Manufacturing.
- Xerox has been experiencing declining sales and its recent sale of its interest in the Fuji-Xerox joint venture raises significant concerns about its future position.
- HP believes that Xerox’s cost-cutting has come at the expense of long-term value creation, and Xerox has demonstrated a lack of focus on research and development.
- The quantity and nature of the conditions of the Xerox offer create significant uncertainty and risk.
- The HP board believes that Xerox’s urgency in launching the offer, while simultaneously running a full slate of director nominees for election at HP’s 2020 Annual Meeting of Shareholders, evidences Xerox’s desperation to acquire HP to address its continued business decline.
- The HP board has received an inadequacy opinion both Goldman Sachs and Guggenheim Securities that the Xerox offer was inadequate from a financial point of view.
If history repeats itself, Xerox's board will soon be issuing a similar statement reiterating its own top list of reasons why the proposed transaction would make good business and financial sense — such as the investor presentation that Xerox CEO John Visentin (click here to view his Xerox Shareholder Presentation) has been using to gain the direct support of HP's major shareholders.