Xerox launches a hostile takeover bid for HP

Xerox is dropping the niceties. It really, really wants to merge with HP, and it has gone hostile.

The copier company said Thursday it will nominate 11 new directors to replace HP’s entire board at HP’s upcoming shareholder meeting.

Xerox has been attempting a takeover for months, and HP has twice rejected Xerox’s bids.

HP said Thursday Xerox’s proposal “significantly undervalues HP and creates meaningful risk to the detriment of HP shareholders.” It has also raised significant concerns about Xerox’s business strategy, noting that its revenue fell nearly 10% in 2019.

But Xerox says combining the companies, which are in similar businesses, could save tremendously on costs.

“We believe HP shareholders will be better served by a new slate of independent directors who understand the challenges of operating a global enterprise and appreciate the value that can be created by realizing the synergies of a combination with Xerox,” Xerox CEO John Visentin said in a statement Thursday.

HP called Xerox’s nominations a “self-serving tactic by Xerox to advance its proposal.”

The hostile takeover, if successful, would merge two American technology giants that have both seen better days.

A deal would be complicated by the fact that HP is more than three times the size of Xerox: HP has a market value of $32 billion, compared to Xerox’s less-than-$8 billion valuation. Xerox’s latest offer would value HP at $33.5 billion, or $22 per share. HP’s market cap was about $27 billion before Xerox came in with its offer in early November.

But Xerox announced in November that it is selling various stakes in former parts of its business, and it will generate $2.5 billion in cash from those transactions. And on Thursday the company announced it lined up $24 billion in financing to take over HP.

HP’s stock was marginally higher in premarket trading. Xerox was flat.

A marriage between the companies could make sense. Both Xerox and HP spun off their big money-making ventures in recent years, leaving behind aging printing businesses that remain profitable. But those earnings are dwindling every year.

HP had surprised investors by growing faster than many had believed possible after its 2015 split with HP Enterprise, but it has struggled in recent quarters.

Although HP still has a sizable PC business, fewer customers are buying ink from HP. Ink sales had long been HP’s profit generator: HP would take losses on its printer sales, generating the bulk of its income from ink. But smartphones make printing less crucial, and many customers who do print are able to find cheaper ink suppliers.

The company announced in October that it would cut between 7,000 and 9,000 jobs by 2022. At the time, Enrique Lores, HP’s CEO, called the move “bold and decisive action” to help the company in its next chapter. HP’s former CEO, Dion Weisler, stepped down late last year for a family matter.

Xerox, like HP, relies on a dying business for the bulk of its sales and profit. It sells and services copy machines and printers, primarily for corporations. But sales are falling, declining in each of the past seven quarters.

Both companies have a storied history: Xerox started in 1906 as the Haloid Photographic Co. The photographic supply company in Rochester, New York, paved its way to mega-success in March 1960, when it shipped its first office copier. The Haloid Xerox contraption was the size of two washing machines and weighed 648 pounds. It also occasionally caught on fire. The Xerox copier’s core technology -— a process called xerography, invented by Chester Carlson — is still widely used in copy machines five decades later. Xerox is now based in Norwalk, Connecticut.

HP traces its origins to 1938, when Bill Hewlett and Dave Packard rented a garage in Palo Alto, California. That year, they invented their first product: the HP Model 200A, an audio oscillator used to test sound equipment. The company became the pioneer of Silicon Valley, building its first computer in 1966 and the famous HP-35 in 1972 — the world’s first handheld scientific calculator.