Posted on 01/20/2020 3:03:16 AM PST by Cronos
As of this writing, Xerox is attempting a hostile takeover of HP Inc., after HP Inc.’s board reiterated its rejection of Xerox’s offer on Jan. 9, 2020, and has obtained a commitment for the necessary $24 billion loan to complete the deal should HP Inc. accept a Xerox offer.
HP Inc. continues to contend Xerox’s valuation of approximately $33 billion is too low, implying it would consider an offer with a higher valuation. HP Inc.’s stock market valuation is almost four times that of Xerox. ACQUISITION REMAINS A POSSIBILITY
HP Inc.’s board has signaled its willingness to consider higher offers, as the driver of the offer, activist investor Carl Icahn, is a major stockholder in both companies and there is considerable overlap among leading institutional investors in both companies. Nevertheless, since the first offer was made, HP Inc.’s stock has increased in value and Xerox’s has decreased, making the proposed acquisition less attractive to shareholders. Xerox is limited in how much it can increase its offer, since higher offers would increase the debt carried by the new company.
Supporters of the acquisition recognize that Xerox’s and HP Inc.’s printing and printing-related services businesses are very complementary. Xerox is stronger in the enterprise, while HP Inc. is stronger with SMBs. HP Inc. relies on a strong channel, with emphasis on value-added services, and Xerox has a larger direct business, with channel partners relegated more to a reseller model. Xerox owns a more comprehensive services business, Xerox Business Services, that retains its locally and vertically oriented subsidiaries. HP Inc. is relatively stronger outside North America, especially with SMBs.
BUT IT COULD GO THE OTHER WAY
Because of its larger size and lower debt burden, HP Inc. is positioned to counteroffer Xerox with an offer to merge. The companies were in talks before Xerox’s original offer, and HP Inc.’s objection to the current offer is regarding valuation, so TBR believes HP Inc.’s board would consider a merger on better terms. Both companies are executing restructuring plans that involve headcount reduction to adapt to the globally shrinking market for printing, and therefore, print supplies, which has been a profitable part of both businesses. Both restructuring plans are also aggressive, Xerox’s more so than that of HP Inc. However, TBR believes Xerox’s proposed plan for the new company is too aggressive for HP Inc., suggesting an HP Inc. acquisition of Xerox, or a more equal merger, would not align with the plans of Icahn or the Xerox board. 3D PRINTING: HP INC.’S UNHIDDEN GEM
The not-so-hidden gem in the HP Inc. portfolio is additive manufacturing, more commonly called 3D printing. HP Inc. has more than a decade of research in this field, growing out of the inkjet business. It has products and customers and regularly announces partnerships, small acquisitions and improvements in speed, size and materials. TBR believes 3D printing is a slow-moving, large-scale disruptor, starting with medical applications and retail customization and expanding into repair parts and low-volume manufacturing. Over time, 3D printing will drive top-line growth that the mature PC and printing businesses cannot. Xerox’s plan includes 3D printing, but it is one of many ostensibly adjacent businesses in which it has an interest. It is not clear that a Xerox-led merged company would continue to make the investments necessary to capitalize on this gem. THE PC IMPACT
The big question for the PC industry is what a unified company would do with HP Inc.’s PC business. For HP Inc., PCs are a relatively low-margin business but generate a considerable amount of cash because of an advantageous cash conversion cycle. Spinning off or selling the PC business to reduce the new company’s debt burden is one possibility; however, Xerox has plans to leverage HP Inc. to make its services businesses more comprehensive, effectively combining managed print services with PCaaS.
There are no obvious acquirers for HP Inc.’s PC business. Acquisition by HP Inc.’s primary competitors, Dell Technologies and Lenovo, would probably be met with regulatory objections. Huawei is too restricted in the U.S. market, due to concerns over Huawei device security, to profit from such a deal. These facts suggest that an offer for HP Inc.’s PC business would be too low for the new entity’s needs.
Irrespective of the future of this deal, the uncertainty has opened up opportunities for HP Inc.’s primary PC competitors among customers and partners. While a merger would be more disruptive than the uncertainty, a spinoff or sale of HP Inc.’s PC business would be more disruptive than a merger. And TBR believes the uncertainty of this deal will continue to hinder HP Inc. as a whole until issues are resolved.
Then under Meg it first separated HP (printers and PCs) from software (HPE). Then HPE was split into HPE (cloud) and the Enterprise services was merged with CSC to form DXC.
HPE is dying, while DXC is dying fast (continuous drop in revenues, profits and key employees over 6 quarters).
Now HP will be gobbled up by Xerox.
Expect quite a lot of job cuts. That's what HP has been doing for years
That's the only certainty in all this. Thousands of jobs lost here. Thousands of jobs added in India.
How does Xerox have the cash to even attempt this?
I might go and question the value that HP thinks they are worth.
Over the past ten years, on stock prices...the last time they were at $40...was around 2010. For a brief period around 20 years ago, they were near $80 a share, but that all flushed away by 2002. They did pay 70 cents a share back in December per share.
The only positive side to this is that global PC sales are up and figured to stay up for all of 2020.
Or China.
Two mismanaged companies...to be merged into one very mismanaged business...
Hedge Funds.
What it will mean is another bankruptcy for Xerox.
We’ve been holding our breath at DXC, being told there will be a sale or spinoff this year of the part of DXC, (previously HPE, previously HP, previously EDS) that I work in. IT has been being destroyed for decades of offshore and H1Bs. I have been blessed to hang on this long.
So many good people have smartly already left, I stay because at my age it will be difficult to start over and I do love the work. For younger workers in their 40’s or 50’s it would be a good time to get out since the economy is good right now.
“Two mismanaged companies...to be merged into one very mismanaged business...”
Don’t worry, the management will be OK.
Xerox? Does Xerox still exist?
The company has no products and must have products ot die
Both boats sink
HP went from the world’s premiere manufacturer of quality instrumentation to a purveyor of decent printers and crappy PC clones. Now the printer quality is spotty too. HP deserves to die.
I generally think of HPE as the remains of EDS, and HPI as the remains of Compaq plus the printers.
Is there really anything left of the old Hewlett Packard (except maybe the printers?)
As for Xerox, isn’t it pretty much ACS and some printers now?
HP never recovered form Carly...
What she did to that company was insanity... and the fact the board let it continue to happen long long after it was obvious she was incapable of doing the job rather than admit their Tokenism had failed is indefensible.
I used to work for Xerox. It means the death of HP. Xerox had the worst case of corporate tunnel vision I’ve ever encountered in 45 years of industry experience.
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