Tech

Xerox gives HP an ultimatum to reconsider acquisition, threatening to take its case to shareholders

Key Points
  • Xerox CEO John Visentin wrote a letter to HP's directors asking that they reconsider the company's takeover bid before the board brings its case to HP shareholders directly.
  • HP's board unanimously rejected Xerox's bid to acquire the company over the weekend.
  • The HP board argued the deal undervalued the company and was not in the best interest of shareholders.
Signage is displayed outside Xerox headquarters in Norwalk, Connecticut.
Michael Nagle | Bloomberg | Getty Images

Xerox's board of directors threatened to go to HP's shareholders if the company does not reconsider its acquisition bid, Xerox said in a letter to HP directors Thursday.

In the letter, Xerox Vice Chairman and CEO John Visentin said his board "is determined to expeditiously pursue our proposed acquisition of HP to completion — we see no cause for further delay. Accordingly, unless you and we agree on mutual confirmatory due diligence to support a friendly combination by 5:00 p.m. EST on Monday, November 25, 2019, Xerox will take its compelling case to create superior value for our respective shareholders directly to your shareholders."

Shares of HP were down slightly and Xerox was up more than 1% by the end of the trading day. HP did not immediately respond to a request for comment.

HP's board said Sunday that it unanimously rejected Xerox's bid to buy the company, arguing the offer undervalued HP and was not in the best interest of shareholders. Xerox offered HP $22 per share in its takeover bid for the company, consisting of 77% cash and 23% stock, or $17 in cash and 0.137 Xerox share for each HP share.

"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," HP's board wrote when it rebuffed Xerox's offer.

Visentin said Xerox's directors were "very surprised" by HP's decision to reject their bid.

"Frankly, we are confused by this reasoning in that your own financial advisor, Goldman Sachs & Co., set a $14 price target with a 'sell' rating for HP's stock after you announced your restructuring plan on October 3, 2019," Visentin wrote. "Our offer represents a 57% premium to Goldman's price target and a 29% premium to HP's 30-day volume weighted average trading price of $17."

HP's broad restructuring plan is aimed at saving the company $1 billion a year by the end of fiscal 2022. In October, HP announced it would lay off between 7,000 and 9,000 workers as part of that plan.

Activist investor Carl Icahn, who owns a 10.6% stake in Xerox, has been pushing for a merger between Xerox and HP, in which he recently bought a $1.2 billion stake. Icahn said he believed a combined company would be in the best interests of shareholders from both companies with the potential to cut costs.

HP has a market valuation of about $29 billion, more than three times the size of Xerox.

The full letter is below. HP's chairman is Chip Bergh and Enrique Lores is the company's CEO.

Dear Chip and Enrique,

We were very surprised that HP's Board of Directors summarily rejected our compelling proposal to acquire HP for $22.00 per share, comprising $17.00 in cash and 0.137 Xerox shares for each HP share, claiming our offer "significantly undervalues" HP. Frankly, we are confused by this reasoning in that your own financial advisor, Goldman Sachs & Co., set a $14 price target with a "sell" rating for HP's stock after you announced your restructuring plan on October 3, 2019. Our offer represents a 57% premium to Goldman's price target and a 29% premium to HP's 30-day volume weighted average trading price of $17.

Moreover, our offer is neither "highly conditional" nor "uncertain" as you state. There will be NO financing condition to the completion of our acquisition of HP.

While we are glad to see that HP's Board of Directors acknowledges the substantial merits of a business combination between Xerox and HP and are open to exploring the value opportunity for our respective shareholders, your response lacks a clear path forward. You have requested customary due diligence, which we have accepted, but you have refused to agree to corresponding due diligence for Xerox. Any friendly process for a combination of this type requires mutual diligence—your proposal for one-way diligence is an unnecessary delay tactic. In light of favorable markets and terms, Xerox is determined to capture the compelling opportunity for our respective shareholders and strongly encourages HP's Board of Directors not to sanction further delay in light of our extensive discussions to date.

Xerox remains willing to devote the resources necessary to complete mutual due diligence over the next three weeks and confirm the substantial cost and revenue synergies that we both believe could be achieved through a combination.

The Xerox Board of Directors is determined to expeditiously pursue our proposed acquisition of HP to completion—we see no cause for further delay. Accordingly, unless you and we agree on mutual confirmatory due diligence to support a friendly combination by 5:00 p.m. EST on Monday, November 25, 2019, Xerox will take its compelling case to create superior value for our respective shareholders directly to your shareholders. The overwhelming support our offer will receive from HP shareholders should resolve any further doubts you have regarding the wisdom of swiftly moving forward to complete the transaction.

We look forward to your prompt response.

Sincerely,

John Visentin
Vice Chairman and CEO
Xerox Holdings Corporation

— CNBC's Emma Newburger contributed to this report.

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