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.
Get woke, go broke!
Never worked for or with Xerox, but This is the company that invented object oriented programming and the graphical user interface the Ethernet .. among countless other things, and never capitalized appropriately on much of it...
Xerox litterally invented computer networking as it is known today...
Yet you never hear them mentioned when it is discussed...
They copied it......................
That’s because those technologies didn’t use xerography.
They also made the world’s first microprocessor with on chip ROM and RAM.
Since they just lost their hat and butt in a failed attempt at personal computers, they didn’t call it a microprocessor, it was called the LCC, Low Cost Controller. Controller for what? Xerox copiers.
Nothing else. They could have taken over the industrial controls market!
Nope. Only dry powder fused to paper.
DXC has WFR’ed a lot of senior people all over North America and Europe, even in Poland. I also know folks in DXC India and the axe has landed there as well.
I guess you are looking out for other jobs as well. We don’t know when that company will fold
Xerox has a lot of products and is doing quite well. Besides the hardware it has a lot of services directed at business
They’re just copy cats....
They’re just copy cats....
Two mismanaged companies...to be merged into one very mismanaged business...
Kind of like Sears and K-Mart.
“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.”
Absolutely correct!!! I survived that woman but got caught up in the Mark Hurd mess following her. The server side of the business never recovered. One train wreck after another.
I used to have stock in both companies. My cousin used to work at HP. Xerox is not the Xerox of the 1970s...The only people who’ll be happy is hedge funds...and the managers who are the Hunter Biden of computers and printing...(they don’t know about the companies, if I managed my companies like they do...I’d be in jail...
True...Xerox is the Sears, HP is the K-Mart...so you’ll see it die....short the stock...
ACS is gone. Xerox sold the IT business to Atos and spun the BPO business out as Conduent.
Darwin Deason still has a big chunk of Xerox preferred, though.
Thanks for the update. Speaking of ACS, did you see the stories about the leaning tower of Dallas a few weeks ago?
Yeah, good old Building One.
I thought about organizing a sunrise watching party for the original implosion.
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