HP tells Xerox its $24bn funding is irrelevant - its offer still 'significantly undervalues HP'

HP Inc CEO Enrique Lores returns fire against Xerox's John Visentin

HP Inc has told Xerox that the $24 billion in funding commitments it secured last week does not change the fact that its acquisition offer undervalues the PC and printer maker.

The salvo came in a curt open letter to Xerox CEO John Visentin, published on Wednesday, from HP CEO Enrique Lores, and Chairman Chip Bergh. The pair were responding to Visentin's letter of 6^th January.

The PC maker, however, reiterated that it was still open to pursuing "the most value-creating opportunities" for HP shareholders.

On Monday, in its letter to HP, Visentin claimed that Xerox had secured $24 billion in binding financing commitments from Citi, Mizuho and Bank of America, backing its proposed takeover.

Xerox claimed that the funding commitment should dispel HP's concerns that Xerox would not be able to raise the required capital for the takeover.

"It remains clear to all of us that bringing our companies together would deliver substantial synergies and meaningfully enhanced cash flow that could, in turn, enable increased investments in innovation and greater returns to shareholders," Visentin stated in his letter to HP.

Xerox had offered to pay $22 per share for HP in a combined cash and stock deal that would give $17 in cash plus $0.137 in Xerox stock for each share of HP, valuing the company at $33.5 billion.

Visentin had claimed that the merger of the two companies could generate $2 billion in cost savings over the next two years.

However, the proposal was unanimously rejected by HP's board, who claim that it significantly undervalues HP, and would therefore not be in the best interests of HP Inc shareholders.

The HP board was also concerned that a combined company might struggle with "oversized debt". They also pointed out that Xerox's revenue fell in 2018.

In turn, Xerox has claimed that a number of HP shareholders are nevertheless interested in a deal.

Billionaire activist investor Carl Icahn - who holds a 10.6 per cent stake in Xerox and a 4.24 per cent stake in HP - said he supports a merger between the two companies, which he described as a "no-brainer".

He continued: "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 is almost six times larger than Xerox by revenue. The two companies had held exploratory talks about a merger, but HP has also hinted that it could turn the tables on Visentin and make a counter-offer for Xerox.