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HP rejects acquisition offer from Xerox, but leaves door open to raised bid

HP Inc's board of directors believe that Xerox's offer significantly undervalues the PC and printer maker

HP Inc has rejected an acquisition offer from Xerox, but said it was ready to explore a bid if it is supplied with more due diligence information from the copier maker.

The company announced on Sunday that its board of directors, after detailed discussion on the matter, concluded that the offer made by Xerox significantly undervalued the PC and printer maker and was not in the best interests of HP shareholders.

A combination is a no-brainer

The board was also concerned that a combined company might struggle with "oversized debt". There were also reservations about the drop in Xerox's revenue over the past year.

"With substantive engagement from Xerox management and access to [due] diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction," HP said in a statement.

Earlier this month, Xerox made a $33.5 billion cash-and-stock offer to acquire HP Inc. (or HP), a company more than three times its size. Xerox believed the merger of the two firms would result in $2 billion in cost savings over next two years.

Xerox had received an informal assurance from a major bank to receive funding for the deal, the Wall Street Journal claimed.

HP currently trades at a market value of about $27 billion, while Xerox is valued at around just $8 billion.

HP's rejection is surely a loss for billionaire activist investor Carl Icahn, who holds a 10.6 per cent stake in Xerox and a 4.24 per cent stake in HP.

In an interview with the WSJ last week, Icahn said that he was a proponent of a merger between the two companies.

"I think a combination is a no-brainer," Icahn said, adding that he strongly believed "in the synergies" the two companies would enjoy, if they merged.

HP has surprised most analysts and investors by growing at a better pace (than what they had believed) since its split with HP Enterprise (HPE) in 2015. But, in recent quarters, the company has struggled a bit, especially with its printer business segment, whose revenue for Q3 2019 dropped five per cent year-on-year, despite the 2016 acquisition of Samsung's printer business.

Last month, HP said that it would cut between 7,000 and 9,000 jobs by the end of 2022.

The company believes the 'restructuring plan' will help make HP a "more digitally enabled company" and to save $1 billion by the end of 2022.

HP rejects acquisition offer from Xerox, but leaves door open to raised bid

HP Inc's board of directors believe that Xerox's offer significantly undervalues the PC and printer maker

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