HP has rejected the offer from Xerox again

The management board of HP Inc. has once again rejected the takeover bid made by Xerox. The company again accuses the rival of significant underestimation of its value.

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On Monday, January 6, Xeroks’ Vice President and CEO, John Visentin informed shareholders of HP Inc. to secure enough funds to take over this company. She responded to Visentina’s announcements with an open letter, signed by Enrique Lores, CEO and CEO, and Chip Bergh, CEO of the company.

The short answer is:

“We emphasize that HP management is focused on creating long-term value for HP shareholders. Your financing letter, dated January 6, 2020, does not raise the key issue – that the Xerox proposal underestimates HP significantly – and is not the basis for discussion. HP management remains committed to promoting the best interests of all HP shareholders and seizing the opportunities that bring the most value,” we can read from the letter.

How Xerox is trying to buy HP Inc.

Xerox first purchase offer of HP Inc. submitted in November 2019. The company was ready to spend about $ 33.5 billion – $ 22 per share, of which 77 percent in cash and 23 percent in actions.

HP Inc. he rejected the offer then, considering it too low. HP Inc. representatives also questioned the opponent’s financial condition, noting his deteriorating financial results – a decrease in revenues from USD 10.2 billion in 2018 to 9.2 billion in 2019. In response, Xerox threatened that in the event of disagreement at management level it would push an agreement directing the offer directly to HP Inc. shareholders As in the message of John Visentin from January 6 this year.

There were also doubts whether Xeroks would manage to accumulate such a large amount. The market value of HP Inc. it is currently around USD 30 billion, while Xeroks’ capitalization is around PLN 7.7 billion. USD.

Xerox now ensures that it has acquired financing for the acquisition of HP Inc. thanks to loans from Citi, Mizuho and Bank of America for USD 24 billion.

It would be the largest loan ever granted to a technology company, 4 billion larger than the loan granted to IBM for the purchase of Red Hat Inc in 2018.

The advantage of the merger, emphasized by Xeroks, are achievable savings on shared operating costs, estimated by the company at $ 2 billion a year, as well as an increase in revenues of $ 1.5 billion. within three years. (Xerox is already undergoing a $ 640 million spending reduction program, and HP Inc. announced a reduction of 9,000 employees by 2022).

However, as seen from the reactions of HP Inc. management, they are not convinced by these arguments.