Despite a string of firm rejections, Xerox continues to make its case that it's a suitable buyer for rival HP. In an investor presentation filed Monday, Xerox outlines the logic behind its proposed HP acquisition and argues that the deal is in the best interest of HP shareholders.
In November, Xerox offered to pay $22.00 per share for HP, consisting of 77% cash and 23% stock, or $17 in cash and 0.137 Xerox share for each HP share. HP's board unanimously rejected the bid, arguing that the offer significantly undervalued HP and was not in the best interest of its shareholders. HP has a market value of $27 billion, about three times the size of Xerox.
Xerox then sent a letter to HP's board of directors, urging the company to reconsider its buyout offer or else it would take its case directly to HP's shareholders. From there, HP's board of directors sent a fairly blunt letter to Xerox as well as Icahn Enterprises essentially telling Xerox that it just isn't good enough financially to buy a much larger company.
Now, Xerox says CEO John Visentin is meeting with some HP shareholders to walk them through the key points of the proposed acquisition. In what it describes as "undisputed" logic, Xerox posits that the increased cash flow of a combined HP/Xerox would help pare debt, increase capital returns to shareholders and drive greater investment in innovation.
Xerox also said HP has key market gaps in segments where Xerox is strong, such as Office A3 and managed services. The complementary portfolios would increase the total addressable market for both brands, Xerox said.
Addressing HP's assertion that Xerox's bid significantly undervalues HP, Xerox said the stock consideration of its proposal results in HP shareholders owning roughly 48% of the combined company. This would give HP shareholders significant equity upside, according to Xerox, before revenue synergies are achieved.
Xerox said its strategic plan would achieve $2 billion of synergies in three years, generating nearly 60% more equity value for HP than HP's standalone plan.
Xerox also takes issue with HP's approach to restructuring, arguing that HP's move to spend $1 of cash for every $1 of savings would do nothing to streamline operations for the future. Xerox said it focuses on operations and cashflow, not headcount, when it comes to restructuring.
Xerox said its Project Own It restructuring plan helped Xerox's share price climb nearly 90% year-to-date, while also saving the company nearly $1 billion over18 months. By contrast, Xerox said HP's share price was down by over 17% since the company announced its own restructure.
Xerox is once again asking for three weeks of mutual due diligence, which it says "is not onerous and would help validate assumptions and find additional benefits to the combination."