Xerox secures funding to resume HP takeover talks
The aborted takeover deal between Xerox and HP may be back on track.
HP’s board of directors rejected Xerox’s bid to acquire the company in November last year, but the company now wants the two parties back on the discussion table following the news that Xerox has received US$24 billion in funding commitments for the acquisition.
In a statement on Monday, Xerox confirmed it had written to the board of directors of HP confirming binding financing commitments from Citi, Mizuho and Bank of America to complete its value-creating combination with HP.
The letter, signed by John Visentin, vice-chairman and CEO of Xerox, reads: “Over the last several weeks, we have engaged in constructive dialogue with many of your largest shareholders regarding the strategic benefits of our proposal to acquire HP.
“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.”
Aurojyoti Bose, lead analyst at GlobalData, a data and analytics company, says Xerox has managed to resolve the major sticking points that had railroaded the proposed transaction. “After months of uncertainty, Xerox has moved towards its acquisition bid for HP. Xerox has confirmed US$24 billion funding commitments from Citi, Mizuho and the Bank of America, thereby putting an end to doubts regarding Xerox’s ability to raise the required capital to close such a big deal.
“It is also one of the largest bridge loans for a technology firm and can possibly pave the way for similar high-value merger and acquisition transactions in 2020.”
He adds: “Through this loan, Xerox has managed to remove one of the major roadblocks in execution of the deal, which was previously rejected by HP’s board of directors citing undervaluation, poor top-line performance of Xerox and doubting its ability to raise the required capital to close the deal. Carl Icahn, who holds a 4.24% stake in HP, is in favour of the merger.”
According to CNBC, Xerox had initially offered HP $22 per share in its bid for the company. The bid consisted of 77% in cash and 23% stock, or $17 in cash and 0.137 Xerox share for each HP share.
Bose notes: “HP shareholders and board of directors are likely to rethink the potential merger, and financial backing from three major financial services firms showcases confidence in potential of the combined entity.”
HP has reportedly been struggling to find a viable model to move beyond its profitable printing business as customers shift toward digitisation.
In October, HP posted its fiscal 2020 financial outlook and restructuring strategy, announcing plans to cut up to 9 000 jobs globally in the next three years.
The company estimates it will incur total labour and non-labour costs of approximately $1 billion in connection with the restructuring and other charges, with about $100 million in fiscal Q4 of 2019, $500 million in fiscal 2020, and the rest split between fiscal 2021 and 2022.
These actions are expected to be completed in fiscal 2022 and are estimated to result in annualised gross run rate savings of about $1 billion by the end of fiscal 2022.