Topline: After HP’s board of directors once again rejected a takeover bid from Xerox last weekend, Xerox is preparing to make its $33.5 billion buyout bid hostile by going directly to shareholders, in the hopes that they could pressure the board.
- The two companies have been at odds since earlier this month, when HP’s board unanimously rejected an acquisition proposal from Xerox, blocking a deal that would unite the two struggling printing companies.
- HP once again rejected a takeover last Sunday, writing in a letter to Xerox that its proposal “significantly undervalues HP,” as well as criticizing the company for using “aggressive” tactics to pursue the deal after being spurned twice.
- Xerox responded by sending a letter on Tuesday, saying that it will go directly to HP shareholders to present its case for a buyout, as HP’s stance on the merger “defies logic.”
- “We plan to engage directly with HP shareholders to solicit their support in urging the HP Board to do the right thing and pursue this compelling opportunity,” Xerox CEO John Visentin wrote in the statement.
- If HP shareholders end up supporting Xerox’s proposed takeover bid, they could take action to pressure management: Although they can’t directly overrule them, they can try to call a general meeting, attempt to replace board members or possibly even take legal action.
- HP’s board had questioned the health of Xerox’s business, pointing out its nearly 10% revenue decline since last year and adding that a combined company might have too much debt.
Tangent: Famed investor Carl Icahn, who holds a 10.6% stake in Xerox and a 4.24% stake in HP, has reportedly been pushing for a merger and is one of the deal’s biggest backers.
Crucial quote: “The potential benefits of a combination between HP and Xerox are self-evident,” Xerox’s Visentin wrote in his most recent letter to HP board members. “Together, we could create an industry leader—with enhanced scale and best-in-class offerings across a complete product portfolio—that will be positioned to invest more in innovation and generate greater returns for shareholders.”
Key background: Xerox offered to spend $22 per share, or $33.5 billion, to acquire HP earlier this month, making a case for a merger that it said would save both companies $2 billion in costs over the next two years. In a November 17 letter to Xerox’s CEO, HP’s board of directors rejected the unsolicited proposal, and it did so again on Sunday following Xerox’s latest push for a takeover. HP’s board wrote that “Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information.” That prompted Xerox’s Visentin to threaten to go directly to HP shareholders, arguing that the deal would be a “compelling opportunity” for the shareholders of both companies. Xerox and HP have struggled in recent years, spinning off different ventures to leave behind an aging printing business that remains profitable for now—though earnings are dwindling every year.
Big numbers: Xerox’s stock price fell slightly on Tuesday, down by 0.4%. HP shares were down 1.2% on the news. Both stocks are up since last Thursday, however, when Visentin first threatened to approach HP’s shareholders directly if the two sides could not “support a friendly combination.”