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Stop us if you've heard this one before: HP Inc rejects Xerox's $36.5bn buyout plan as takeover saga drags on

The buy price, the debts... won't someone think of the HP shareholders?

It's all getting a bit boring but HP Inc's board has again unanimously rejected Xerox's $36.5bn buyout bid, saying it low-balls their valuation of the company and "disproportionately benefits" Xerox shareholders.

In a statement issued to investors last night, HP recommended for the umpteenth time that its stock owners do not tender shares.

Chip Bergh, chairman of the board, said Xerox's recently upped $36.5bn offer still "undervalues HP" and comes "at the expense of HP shareholders".

"The Xerox offer would leave our shareholders with an investment in a combined company that is burdened with an irresponsible level of debt and which would subsequently require unrealistic, unachievable synergies that would jeopardize the entire company."

Talks between Xerox and HP Inc began in August 2019 and were made public in November. HP has repeatedly refused to enter into mutual due diligence citing worries about the buy price, among other things.

Xerox initially bid $33.5bn for HP, equating to $22 per share. However, it revised this offer upwards last month to $24 per share ($18.40 cash and 0.149 Xerox shares for each HP share).

The sticking points mentioned last night in relation to the Xerox offer – in addition to the ones above – include Xerox using HP's balance sheet as a "transaction consideration" for Xerox investors; it would "compromise the future of HP" by leaving HP shareholders with an "investment in a combined company with an irresponsible capital structure, premised on unrealistic synergy estimates"; that Xerox wants to cut costs too far; Xerox lacks experience in PCs, and home and 3D printing; Xerox's sales have been declining steeply; and Xerox lacks focus on R&D spending.

It is certainly true that Xerox's salespeople haven't covered themselves in glory: turnover has declined from $10.265bn in 2017 to $9.066bn in 2019. HP has done comparatively better though its fiscal '19 wasn't vintage and left them more vulnerable to takeover.

HP said last night that Xerox's "urgency" in making the offer and "simultaneously running a full slate of directors nominees for election" to HP's board "evidences Xerox's desperation to acquire HP to address its continued business decline".

The board at HP also said they had received an "inadequacy opinion" from Goldman Sachs and Guggenheim Securities that the offer remains too low.

HP also reckons its own strategy, which includes a cost-cutting company restructure and a turnaround plan for print, means it doesn't need Xerox. "NO ACTION is required to REJECT the Xerox Offer," said HP last night.

Since the talks began, Xerox has played less and less nicely, threatening a hostile takeover and then actually doing it by nominating 11 directors to join HP's board in the annual vote scheduled for the summer, publishing a presentation of its plans to convince HP shareholders to agree a deal and getting a funding commitment from three banks.

HP tried to make life more difficult for Xerox by adopting a poison-pill tactic, but confirmed days ago Xerox had begun an "unsolicited exchange offer to acquire all outstanding shares of HP common stock for consideration consisting of cash, Xerox common stock, or a combination thereof".

As Reg readers have pointed out, HP and Xerox have become two pieces in a high-profile game of corporate chess, and it likely won't end anytime soon. ®

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