Printing firm HP mulls potential Xerox tie-up
SAN FRANCISCO/NEW YORK HP Inc. confirmed that Xerox Holdings Corp. has made a takeover offer, a potential deal between two iconic names in technology that would reshape the printing industry.
“We have had conversations with Xerox Holdings Corporation from time to time about a potential business combination,” the Palo Alto, Calif.-based company said late Wednesday in a statement.
“We received a proposal transmitted yesterday. We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline and an eye toward what is in the best interest of all our shareholders.”
Citigroup Inc. has agreed to provide Xerox financing to swallow HP, a person familiar with the matter said.
The company would likely need to take on at least US$20 billion of debt to close the deal, which was reported earlier by the Wall Street Journal.
HP’S market capitalization was about US$27.3 billion at the close of trading on Tuesday, while Xerox’s was US$8 billion, before news broke of the potential deal.
Xerox had extended an offer at US$22 a share, the Financial Times reported, a premium of about 20 per cent to HP’S close Tuesday, before news of a potential takeover emerged. Reuters put the deal at roughly US$33 billion.
HP hasn’t decided whether the Xerox offer is the right deal, according to a person familiar with HP’S thinking. The PC maker doesn’t agree with Xerox on the potential synergies and has concerns about the debt needed for a deal, said the person, who asked not to be identified speaking publicly about internal talks. Even if HP decides a combination is worthwhile, it isn’t convinced Xerox has the relevant experience for a complex merger and doesn’t think Xerox should be the buyer, the person said.
HP, one of the world’s largest printer makers, and Xerox, one of the biggest sellers of photocopiers, are struggling as waning interest in office and consumer printing has blunted both companies’ most profitable businesses. HP also has contended with a stagnant PC market.
Many analysts said there was merit in the companies combining to better cope with a stagnating printing market, but some cited challenges to integration, given their different offerings and pricing models.
“We would be left to question Xerox’s ability to finance such a large transaction and the potential overlap the two businesses would face,” Wells Fargo analysts wrote in a note.
Financing a US$30 billion HP transaction with mostly debt may be challenging.
Both hardware makers have responded to the changing markets with significant cost-cutting measures.
HP’S new chief executive Enrique Lores, former president of HP’S imaging and printing business who officially took over six days ago, announced another restructuring that could remove as much as 16 per cent of the workforce by the end of fiscal 2022, amid falling sales in its lucrative printer ink business.
Xerox said it plans to cut US$640 million in expenses this year.
The copy-machine company, based in Norwalk, Conn., expects a combined Xerox-hp entity could save at least US$2 billion in expenses, according to the Journal.
Xerox’s stock has rallied under CEO John Visentin, who took over last year and resolved a long-running dispute with joint venture partner Fujifilm Holdings Corp.
“Financing a US$30 billion HP transaction with mostly debt may be challenging for Xerox, but not an insurmountable obstacle,” Robert Schiffman, an analyst at Bloomberg Intelligence, wrote Wednesday in a note.