Xerox Holdings Corporation (NYSE: XRX) threatened to go to HP Inc. (NYSE: HPQ) shareholders if the board of directors does not reconsider its acquisition bid.
Xerox’s board of directors issued a letter on Thursday to HP’s board of directors to reconsider its acquisition proposal of USD 22.00 per share share, consisting of USD 17.00 in cash and 0.137 Xerox share per HP share.
“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,” said Xerox Vice Chairman and Chief Executive Officer John Visentin.
HP rejected Xerox’s proposal, arguing that the offer undervalues HP and was not in the best interest of its shareholders.
“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 in response to Xerox’s offer.
Visentin says that Xerox is confused by HP’s reasoning because its own financial advisor, Goldman Sachs, set a price target of USD 14.00 on the stock with a “sell” rating. Visentin continues and says that Xerox’s 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 USD 17.00.
“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,” continued Visentin.
Xerox cites HP’s requested customary due diligence, which the Company has accepted, but Xerox notes that HP has refused to agree to the Company’s corresponding due diligence, in which the Xerox calls an “unnecessary delay tactic.”
“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’s board of directors said it is “determined to expeditiously pursue our proposed acquisition of HP to completion” because it does not see any cause for a further delay.
Consequently, the board said unless Xerox and HP agree on a mutual confirmatory due diligence to support friendly combination by 5 PM EST on Monday 25, 2019, Xerox will take its case to its shareholders as well as HP shareholders to create a “superior value.”
“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,” concluded Visentin in the letter.
Analysts have noted that a merger between the two could potentially cust up to USD 2 Billion in expenses, while further accelerating HP’s personal computer business with Xerox’s printer and copier units.
However, in efforts to restructure the Company, HP decided to cut between 7,000 and 9,000 or 16% of its workforce by the end of fiscal 2022, which will approximately save USD 1.0 Billion a year.