Xerox will launch a hostile takeover bid for HP Inc, after the HP board declined to engage in a mutual due diligence.
Last week, Xerox set a deadline of Monday (25 November) for the HP board to agree to conducting a due diligence exercise and threatened a hostile takeover bid if this didn’t materialise.
On Sunday (24 November), HP Inc responded to Xerox’s ultimatum, saying the Xerox proposal significantly undervalues HP.
“Additionally, [the offer] is highly conditional and uncertain. In particular, there continues to be uncertainty regarding Xerox’s ability to raise the cash portion of the proposed consideration and concerns regarding the prudence of the resulting outsized debt burden on the value of the combined company’s stock even if the financing were obtained.
“Consequently, your proposal does not constitute a basis for due diligence or negotiation,” HP continues in a letter to the Xerox board.
“We believe it is important to emphasise that we are not dependent on a Xerox combination. We have great confidence in our strategy and the numerous opportunities available to HP to drive sustainable long-term value, including the deployment of our strong balance sheet for increased share repurchases of our significantly undervalued stock and for value-creating M&A.
“It is clear in your aggressive words and actions that Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information.”
The HP board states that is is prepared to study the potential value of a combination and to work quickly to learn more about your business trajectory.
“However, there are significant concerns about both the near-term health and longterm viability of your business that have a significant impact on Xerox’s value,” it adds.
“The question of whether there is a path to turn around your business is a threshold issue.”
The letter states that HP has opportunities to create value for its shareholders on its own. “We will not let aggressive tactics or hostile gestures distract us from our responsibility to pursue the most value-creating path.”
Xerox responded yesterday (26 November) as follows: “Your refusal to engage in mutual due diligence with Xerox defies logic.”
It reiterates that the potential benefits of a combination between HP and Xerox are self-evident. “Together, we could create an industry leader – with enhanced scale and best-in-class offerings across a complete product portfolio – that will be positioned to invest more in innovation and generate greater returns for shareholders.
“The market clearly understands the industrial logic of this transaction. HP and Xerox shares are up 9,5% and 6,6%, respectively, since the date our proposal was first made public. We have already received inquiries from several HP shareholders and are encouraged by their interest in our offer.”
It counters the claims made by HP by reiterating a three-year strategic plan built on optimising operations, driving revenue, re-energising innovation, and focusing on cash flow and capital returns. “We are already outperforming this plan,” it adds.
“While you may not appreciate our ‘aggressive’ tactics, we will not apologise for them,” the Xerox board writes. “The most efficient way to prove out the scope of this opportunity with certainty is through mutual due diligence, which you continue to refuse, and we are obligated to require.
“We plan to engage directly with HP shareholders to solicit their support in urging the HP board to do the right thing and pursue this compelling opportunity.”