Xerox Tenders Offer For HP
On March 2nd, Xerox launched a formal tender offer to acquire HP for $24 per share. “Our proposal offers progress over entrenchment,” said John Visentin, CEO of Xerox. “HP shareholders will receive $27 billion in immediate, upfront cash while retaining significant, long-term upside through equity ownership in a combined company with greater free cash flow to invest in growth and return to shareholders.”
The HP board confirms that they will review the “unsolicited exchange offer” and advises shareholders to take no action at this time.
According to Nikkei, “Canon will end its 35-year relationship with HP if Xerox takes over the U.S. office equipment maker.” HP relies on Canon to supply key laser-printer components. In turn, HP is one of Canon’s largest customers, generating nearly 14% in sales.
Canon CEO and Chairman, Fujio Mitarai, explains, “the foundation of this partnership is, above all else, built upon a relationship of trust between the top management of both companies. At the same time, it also involves a great deal of technological exchange gradually established over the decades-long relationship. It is not something that can be built overnight.” The implication being that a takeover, merger, or major change to HP leadership could threaten this long-held relationship.
The CEO’s statement is clearly intended to discourage Xerox’s hostile takeover attempt as a break with Canon will severely impact HP’s supply chain. It’s worth noting that a merger or acquisition between HP and Xerox would also create a competitor with roughly double Canon’s sales.
Canon and HP have not disclosed the terms or length of their supply agreement at this time.
In an effort to ward off any hostile takeover attempts, HP adopted a poison pill plan back in mid February. According to Reuters, the one-year stockholder rights plan “aims to stop investors from amassing more than 20% stake in the company. Among other terms, if any group acquires 20%, all shareholders outside the group will be able to buy additional discounted shares, diluting the ownership of the group.”
The HP announcement specifically stated this plan is intended to counter Xerox’s “aggressive and rushed tactics.” The press release continues, “the rights will not prevent a combination of HP with another business, but should encourage Xerox (or anyone else seeking to acquire the Company) to negotiate with the Board prior to attempting to impose some combination that is not in the best interests of the HP shareholders.”
A week later, HP appointed Richard Clemmer to HP’s Board of Directors, temporarily expanding the board to “13 directors, 11 of whom are independent.” The board will return to 12 directors after the 2020 Annual Meeting of Stockholders, when former HP CEO Dion Weisler will step down from the board.
The press release also noted that Xerox has 10 days to nominate an additional candidate of their own to the 11 candidates they have already nominated.
A few days later, HP increased its total share repurchase authorization to to $15 billion, an increase from the previous $5 billion authorized in October 2019. The company expects to repurchase at least $8 billion HP shares in the 12 months following the 2020 annual meeting. According to the WSJ, this is intended to prevent the shares from being gobbled up by Xerox.