The soap opera continues. HP again tells Xerox: Show us more money!

$33bn 'significantly undervalue' the stock, your move again copier giant

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The board at HP has yet again rejected advances from Xerox, telling the hard pressed copier giant that it needs to increase the tabled bid of $33bn before it considers mutual due diligence and then putting the offer to shareholders.

At the start of this week, Xerox obtained a binding financing commitment from three major banks that are willing to lend it $24bn to partly fund the takeover efforts. Xerox thought this answered one of HP's concerns – ie, could it get hold of the cash – and wrote to the object of its affections to let them know.

However, this still didn't answer HP's main concern, one that it raised when Xerox first approached the business in November with this offer, namely that it falls short of their valuation.

In a brief letter to Xerox CEO John Visentin, HP CEO and vice chairman Enrique Lores and Chip Bergh urged their counterpart to show them more money.

"We reiterate that the HP Board of Directors' focus is on driving sustainable long-term value for HP shareholders. Your letter dated January 6, 2020 regarding financing does not address the key issue – that Xerox's proposal significantly undervalues HP – and is not a basis for discussion."

Little more was mentioned in the letter, except to say that the board is "committed" to "pursuing the most value-creating opportunities."

The talks first became public two months ago – they first began in August – when Xerox dangled an offer of $17bn in cash and 0.137 Xerox share for each piece of HP's stock, in total equating to $33bn.

Other reasons cited by HP for not putting the deal before its shareholders were the future prospects of Xerox, given its revenue decline from $10.2bn to $9.2bn (on a trailing 12-month basis since June 2018). And HP also expressed concern that the buy would load up the merged company with too much debt – HP share has a market cap three times the size of Xerox.

After several further exchanges between the pair, Xerox decided to sidestep HP's board and take its offer direct to HP shareholders, threatening a hostile takeover. It wrote a presentation designed to convince HP investors of the sound rationale for doing a deal: $2bn worth of synergy savings; a bigger market opportunity; and more capital returns.

A stockholder of both HP and Xerox, Carl Icahn is agitating to see the boards at the two companies first bump and merge, describing the tie-up as a "no-brainer."

Lores, who became CEO in November, doesn't agree, at least with the financial terms, and wants to pursue his vision for HP, which includes a revamped print strategy, a restructure and more. ®

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