Xerox / HP Inc combination - latest news

04 December 2019

The Xerox / HP Inc affair is certainly becoming more contentious, but it does seem increasingly likely that these two companies will enter into some form of combination.
The "activist" investor Carl Icahn continues to play a significant role in the saga.  It was he who prevented Xerox from merging with Fujifilm in 2018, bringing about the lawsuit that has caused Xerox to leave its joint venture with Fujifilm as we reported previously.  At that time Xerox got a new CEO, John Vesentin - who is a long-term associate of Carl Icahn's.
There is massive potential for both companies - and for their investors - from a merger.  They are a good fit.  Icahn describes it as a "no brainer."  The market would agree: shares on both have risen substantially.
Since our last report, discussions between HP Inc and Xerox have gone public - and become heated.  Icahn has recently revealed that, in addition to his 10.6% of Xerox, he has bought 4.24% of HP Inc.  Vesentin and Icahn are lobbying HP Inc senior management and shareholders to persuade them to accept the offer from Xerox. A hostile takeover bid seems likely, if somewhat unorthodox given that HP is much the larger company of the two. HP Inc is worth some $30/€27 billion, compared Xerox at approximately $8.3/€7.5 billion.
Outstanding issues surround who would ultimately take control of the merged companies, and bring the cost reductions and enhanced profitability that Xerox are keen to achieve.  
HP Inc's board is less keen, expressing concerns that the deal would not be the best outcome for their shareholders - and that the financial aspects of Xerox' proposal do not stack up.  The offer on the table offers $22/€19.80 per share for HP Inc, in a mixture of cash and Xerox stock.  HP Inc still doubt that the proposal even merits "due diligence" - serious consideration - that it significantly undervalues HP Inc, and is "highly conditional and uncertain," despite the $2.3/€2.1 billion windfall Xerox have had from selling their shares in FujiXerox and Xerox International Partners.  Neither of these points would worry someone with shares in both companies - such as Carl Icahn.
Watch this space!

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