Copy that? We'll never join you on the Xerox side if you don't answer simple questions – HP

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HP's board has snapped back at Xerox over its "hostile" $33.5bn takeover threat, saying the copier giant's refusal to answer lingering questions about the merger only magnifies their "concerns" about any tie-up and Xerox's future prospects.

In the first week of this month, Xerox tabled a cash and share swap bid for HP Inc, with CEO John Visentin talking up the respective strengths of their portfolios and the $2bn worth of savings the pair could wring out by joining forces.

Rather unsurprisingly, HP – which had a market cap three times the size of Xerox when the talks began – said the multibillion-dollar offer low-balled its valuation, asked about the implications of servicing debts, and sought assurances over Xerox's $1bn revenue declines (on a trailing 12-month basis) since June 2018.

Then things took an uglier turn late last week when Xerox started using different language, talking about how it is "determined to capture the compelling opportunity for our respective shareholder", and urged HP's board "not to sanction further delay".

The offer includes $17bn in cash and 0.137 Xerox shares for each HP share.

Now HP has been forced to again send a letter to Visentin and his cohorts at Xerox, reiterating its reasons for not accepting the offer and highlighting Xerox's seeming refusal to cover off any burning issues raised. HP said:

It is clear in your aggressive words and actions that Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information. When we were in private discussions with you in August and September, we repeatedly raised our questions; you failed to address them and instead walked away, choosing to pursue a hostile approach rather than continue down a more productive path.

But these fundamental issues have not gone away, and your now-public urgency to accelerate towards a deal, still without addressing these questions, only heightens our concern about your business and prospects. Accordingly, we must have due diligence to determine whether a Xerox combination has any merit.

In bullet points, HP pointed out that:

  • Xerox missed consensus revenue estimates in four of its last five quarters
  • HP is concerned about the decline in total contract value for copier business and that it will shrink further in future
  • The scale of synergy savings specified by Visentin do not look achievable
  • Xerox "essentially mortgaged its future for a short-term cash infusion" by exiting the joint venture with Fujifilm, which has left a "sizeable strategic hole" in Xerox's portfolio.

HP said it will "not let aggressive tactics or hostile gesture distract us" and claimed it is "not dependent on a Xerox combination".

It hasn't been a great year for HP, what with its misfiring supplies business putting pressure on management to restructure – 9,000 employees are scheduled to be made redundant over the next two to three years, and the organisation has removed a layer of regional management to speed decision making.

That said, talk of a tie-up with Xerox has added more than a couple of billion in market cap to HP's share price, jumping from $27.27bn when word of the talks emerged to a little over $29.55bn. Xerox has benefited too, but in a less dramatic way, jumping from $8.05bn to $8.55bn.

Lurking in the background of these increasingly angry words between the two boards is everyone's favourite corporate raider Carl Icahn, who has said he doesn't care if HP buys Xerox of if Xerox buys HP – either way he wants to see the two come together.

Icahn, who owns 4.24 per cent of HP stock and 10.6 per cent stake in Xerox, has a knack of getting his own way as Dell, Xerox's former CEO and others have discovered. ®

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