HP has urged its shareholders to reject Xerox' proposed buyout offer, warning that a complex debt-based deal in the current economic environment could be disastrous for the merged company.
In a letter issued to shareholders on Wednesday, the personal computer giant criticised Xerox for pressing forward its tender offer despite the global coronavirus outbreak, and the sudden and sharp economic downturn this has caused.
We have a healthy cash position and balance sheet that helps us to navigate unanticipated challenges
"It is important for shareholders to understand that, under these circumstances and consistent with our fiduciary duties, we believe that we should not divert valuable time, attention and resources to a dialogue with Xerox about its proposed transaction," HP said in the letter, signed by CEO Enrique Lores and board chairman Chip Bergh.
The company told shareholders that it was "open-minded" about using mergers and acquisitions as a tool to add value for HP, but this was not the time to discuss a major deal with Xerox.
In addition, HP warned that Xerox's offer would burden the new company with a high debt level that could potentially threaten its cash needs.
Looking ahead, the Palo Alto, California-based company stated that it would focus on core businesses as well as new industries with breakthrough innovation, while substantially cutting costs.
HP told shareholders that it was fully committed to protecting their investment in the company, but managing the impact of the outbreak was its top priority at the moment.
"We have a healthy cash position and balance sheet that helps us to navigate unanticipated challenges such as the crisis now before us," HP said.
Earlier this month, Xerox announced that it was pressing the pause button on its pursuit to acquire HP, but the company still moved forward with the proposed board slate and its tender offer.
In February, Xerox increased its buyout offer to $24 per share, after being rejected twice by the PC maker.
Xerox said it was willing to pay HP shareholders $24 a share, valuing the company at more than $35bn. Under new offer, HP shareholders would receive $18.40 in cash and 0.149 Xerox shares for each HP share.
Earlier in January, Xerox announced that it 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.
Last month, HP announced a three-year financial value creation plan to stave off Xerox takeover bid. The company said that it plans to return approximately $16 billion to shareholders over the next three years, equating to nearly 50 per cent of HP's current market capitalisation.
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The takeover would disproportionately benefit Xerox shareholders, HP believes, and leave behind a company overburdened with debt
The company plans to return approximately $16 billion to shareholders over the next three years
The plan will expire in one year