Xerox raises bid to take over HP

On Monday, Xerox Holdings Corporation upped the ante in its bid for a stunning merger with HP Inc (HP +2.6%). Worth around $18.40 in cash and 0.149 Xerox shares (XRX + 1.4 %) for each HP share, Xerox’s offer; at $24 per share values HP at about $35 billion.

In November last year, the US printer maker, headquartered in Connecticut, had its $33.5 billion cash-and-stock offer for HP out-rightly and unanimously rejected by HP’s directors. That offer of $22 per share was deemed devaluing and unsatisfactory.

Responding to that rejection, Xerox’s CEO, John Visentin, expressed a desire to jettison talks with the directors and pitch shareholders directly if they failed to reconsider his acquisition bid. And it appears he has made good on that promise.

As per Xerox’s Monday announcement, they confirmed that they have had several meetings and discussions with HP shareholders and are confident that their incentivized bid would enable the shareholders to ‘accept Xerox’s compelling offer’. An offer they would have no problem financing - having secured, in January, a credit of $24 billion from banks to pursue the takeover.        

And around that time, nominated 11 new directors to replace HP’s entire board, who according to Xerox’s CEO, ‘appreciate the value that can be created’.

One of the more vehement backers of Xerox’s takeover has been billionaire investor Carl Icahn. Carl, who has an almost 5% stake in HP and a 10.9% stake in Xerox, has urged HP shareholders inclined to making a deal to reach out to their headstrong directors and facilitate an agreement.

This approach has irritated HP’s directors, who accuse Carl of pointedly seeking to profit from the merger- and not having at heart the best interests of HP Inc.

Why a merger?

It’s worth noting that both companies are declining forces in their market space. Xerox’s efforts to take over the PC maker, a company more than three times its size, is a ploy to stay relevant in the marketplace. Wall Street projects revenue decline of 4.7% this year (compared to 7.5% last year).

Xerox’s products are no longer as useful as they were several years ago and HP, faced with significant and increasing competition, is struggling to keep abreast in the marketplace. Xerox argues that both companies will derive ‘tremendous value’ and ‘synergies’ from a merger.

And, in the press release, Xerox pitched its offer as ‘providing HP stockholders with both significant, immediate cash value, and meaningful upside via equity ownership in the combined company’. Talk about a sweetened deal.

Xerox is expected to officially launch this offer in early March.

Disclaimer: 

Investingport owns no position in any of the stocks mentioned above.