Xerox, HP Shares Rise Amid Potential Deal

Wall St. Journal

Patrick Thomas and Cara Lombardo

Nov 06, 2019

Shares of Xerox Holdings Corp. and HP Inc. rose after The Wall Street
Journal reported on a possible tie-up of the legacy technology companies.
Xerox has made a cash-and-stock offer for HP, a big personal-computer and
printer maker, people familiar with the matter said Wednesday. The Wall Street
Journal reported late Tuesday that a bid might be forthcoming.
On Wednesday morning, shares of HP were up 12%, while Xerox shares were up
1.7%, in a sign that shareholders of both companies might approve of a union.
HP, which had a market value of about $27 billion as of Tuesday's close,
is significantly larger than Xerox, whose market capitalization was about $8
billion. The bid includes a takeover premium and is less than $23 a share, the
people familiar with the matter said. HP stock closed Tuesday at $18.40.
The big question now is how receptive HP is to the offer. The company
hasn't made any public comment about the overture.
A deal would join two household names with storied pasts that have been
trying to retool their businesses as the need for printed documents declines.
Both companies are in cost-cutting mode and a union could afford new
opportunities to shed expenses -- to the tune of more than $2 billion,
according to people familiar with the matter.
JPMorgan Chase & Co. analyst Paul Coster said in a research note that the
deal looks feasible and has merit, adding that Xerox Chief Executive John
Visentin is well-equipped to cut costs and restructure a combined company. He
said a merged entity could innovate faster. The drawbacks, however, would be
the size and complexity of the deal, he added.
"The combined company will still be confronted with the challenge of
mid-single-digit secular decline in printing industry revenues," Mr. Coster
said. "Execution of cost synergies could take 2-3 years to realize, and there
are risks associated with the undertaking."
Billionaire investor Carl Icahn, who owns a 10.6% stake in Xerox and along
with a partner controls its board, will likely play a big role in the outcome.
"The question now is whether Icahn (or someone else) is also on the other
side and in a position to put pressure on [HP's] new CEO, Enrique Lores,"
Gordon Haskett analyst Don Bilson said in a research note. Mr. Bilson also said
that should HP not be receptive, the window for a shareholder to launch a proxy
fight for board seats opens on Christmas.
Should Xerox acquire HP, it could be the second recent example of Mr.
Icahn orchestrating a deal in which the buyer is smaller than the seller.
Eldorado Resorts Inc. in June agreed to acquire Icahn-backed Caesars
Entertainment Corp., which is twice its size, for roughly $9 billion.