Xerox Considers Takeover Offer for HP
Xerox is considering making a cash-and-stock offer for HP, which has a market value of about $27 billion, according to people familiar with the matter. The copier maker’s board discussed the possibility Tuesday, the people said.
There is no guarantee Xerox will follow through with an offer or that one would succeed. HP, which installed a new chief executive just last week, is more than three times the size of Xerox and any bid would be at a premium to its current stock price, the people said.
Working in Xerox’s favor: It expects a $2.3 billion windfall from a deal to sell stakes in joint ventures with Fujifilm Holdings Corp. , which was announced Tuesday along with the dismissal of a $1 billion-plus lawsuit filed against Xerox by the Japanese technology company.
Xerox has also received an informal funding commitment from a major bank, known as a “highly confident letter,” the people said.
A deal would join two household names with storied pasts that have been scrambling to retool their businesses as the need for printed documents declines. Both companies are in cost-cutting mode and a union could afford new opportunities to shed expenses—to the tune of more than $2 billion, the people said.
Xerox, based in Norwalk, Conn., primarily makes large printers and copy machines and most of its almost $10 billion in annual revenue comes from renting and maintaining them for businesses. HP, based in Palo Alto, Calif., sells mainly smaller printers and printing supplies and is also one of the largest PC makers in the world. It posted revenue of more than $58 billion for its most recent fiscal year, ended in October 2018.
HP is what remains after Hewlett-Packard Co. split off Hewlett Packard Enterprise Co. , which sells servers, data-storage gear and related services to corporate clients, in 2015. Before a decline in its printing-supplies business in recent quarters, it had grown faster than expected as a stand-alone company.
HP’s former chief, Dion Weisler, said in August that he was leaving the company for family-health reasons and would be succeeded by Enrique Lores. Mr. Lores started as an intern 30 years ago and had run the company’s printer business since 2015. Mr. Weisler remains on the board.
HP in early October said Mr. Lores would implement a restructuring plan that would shrink the company’s ranks by as many as 9,000 people, or 16% of its workforce, and yield annual cost savings of $1 billion. The company outlined plans to revive its printer business, which tends to have higher profit but has struggled as customers buy ink cartridges elsewhere.
HP historically sold printers at a loss and then made money selling ink cartridges for them. A new sales model will attempt to lock customers into recurring ink purchases for a discount at the time of printer purchases. It has also been investing in 3-D printing.
Given businesses’ and consumers’ declining reliance on the printed page, bankers consider companies like Xerox, HP and Japan’s Canon Inc. to be primed for consolidation.
HP and Xerox shares have diverged recently.
Xerox shares are up 84% so far this year after the company launched a cost-cutting program, reported better-than-expected third-quarter earnings last week and raised its 2019 outlook. The stock rose by about 5% Tuesday on news of the deal with Fujifilm. Xerox CEO John Visentin said on its earnings call that the company’s improved cash flow makes it well-positioned to do deals big and small.
HP shares, meanwhile, are down 10% so far this year. It is slated to report its fiscal fourth-quarter earnings Nov. 26.
Billionaire investor Carl Icahn owns a 10.6% stake in Xerox. Mr. Icahn began lobbying for changes at the company in 2015. Two years later, he launched a board fight, telling The Wall Street Journal that Xerox “will go the way of Kodak if there aren’t major changes.” In 2018, he and Darwin Deason, another major shareholder, scuttled Xerox’s planned merger with Fujifilm, took control of its board and replaced its CEO with Mr. Visentin.
Fujifilm sued Xerox in June 2018 for breach of contract and estimated damages of more than $1 billion. Fujifilm’s lawsuit alleged Xerox unlawfully terminated the merger due to pressure from Messrs. Icahn and Deason, who argued the deal undervalued Xerox.
Xerox’s agreement with Fujifilm to sell its joint-venture stakes and end the lawsuit allows Fujifilm to continue to be a major supplier to Xerox.
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