Updated 02/27/2020 – HP has returned fire on the heels of beating Wall Street expectations for ‘Q1 20. HP announced a “value creation plan” to return $16 billion to shareholders to fight the hostile takeover bid from Xerox. This will come in the form of HP stock buybacks and dividends powered in part by cost-cutting.
But Xerox has not backed down and plans to launch a tender offer starting “on or around” March 2, which will ask all HP shareholders to sell their shares to Xerox.
There is now speculation that HP could buy out Xerox.
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Updated 02/10/2020 – Xerox has fired another salvo in its hostile take-over attempt of HP. CNBC is reporting that Xerox has boosted its offer for HP Inc. to $34 billion (from $22 to $24 a share). A billion here, a billion there, and pretty soon you’re talking about real money.
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Updated 01/24/2020 – “People familiar with the matter” are saying the HP share-holder Xerox plans to nominate up to 11 people to the 12-person HP Inc. board of directors as the next step in its hostile takeover bid of HP, 2019’s global PC sales leader.
In response, HP publicly called out billionaire activist shareholder Carl Icahn. In a presser, HP claimed Mr. Icahn’s interests were not aligned with those of other HP shareholders.“Due to Mr. Icahn’s ownership position, he would disproportionately benefit from an acquisition of HP by Xerox at a price that undervalues HP.” Mr. Icahn owns about 11% of Xerox and a representative for Icahn wasn’t immediately available for comment to Yahoo.
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Updated 12/10/2019 – And the story goes on – Xerox 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. ZDNet has some of the slides.
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Updated 11/25/2019 – This morning, HP rejected Xerox’s follow-up demand to either agree to formal merger talks otherwise, Xerox would present a “compelling case” for a buy-out directly to HP shareholders. Seems a proxy fight is brewing with activist contrarian investor Carl Icahn holding shares on both sides of the deal.
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Updated 11/17/2019 – HP’s Board of Directors has unanimously rejected Xerox’s bid to acquire HP. But, HP did not completely shut down Xerox’s efforts to merge the two aging tech giants.
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HP inc. could be bought out on the heels of its second round of layoffs in 15 months. According to reports, Xerox (XRX) sent a buyout proposal to HP Inc. on November 5. The PC giant confirmed the offer on 11/06/2019. HP issued a vague statement that reads in part;
… we have had conversations with Xerox Holdings Corporation (XRX) from time to time about a potential business combination. … We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline, and an eye towards what is in the best interest of all our shareholders.
The ambiguous HP (HPQ) statement may be a ploy to bring additional bidders to the negotiating table. Norwalk, CT-based Xerox is reportedly backed by Citigroup Inc. CRN reports that Xerox is set to gain $2.3 billion by selling its 25% stake in the Fujifilm Xerox joint venture.
Bloomberg claims that remaining independent is only going to become more difficult for both HP and Xerox. Gartner predicts that global printer shipments set to decline by 2% annually through 2023. Teaming up would reduce costs and competition in the segments where they overlap; HP is generally stronger in the market for smaller printers, while Xerox holds the lead in larger ones. That could boost profitability even as revenue stagnates.
A Xerox-HP merger would result in significant job reductions around the world as the new company would seek to cut costs through the elimination of back-end costs associated with supply chain, finance, HR, and other OPEX expenses. The impact on the two companies’ respective channels would be most felt in the printer segment, where there’s the greatest overlap. Another likely outcome is the spin-off of HP’s 3D printing division, which is not core to either of the companies.
So how did we get here? Xerox is still finding its way after splitting from its professional services business in 2016, which formed the new business Conduent, and the failed merger with FujiFilm in 2018. Xerox relies on a dying business for the bulk of its sales and profit. It sells and services copy machines and printers, primarily for corporations. But sales are falling, declining for the past seven quarters.
HP announced plans to reduce headcount by as much as 9,000, or 16% of its 55,000 employees. The staff reductions, through layoffs and voluntary early retirement, are expected to be completed by the fiscal year 2022. In June 2018, the company laid off 5,000 employees over several months.
While HP appears to be holding its own in the PC space — both Gartner and IDC place HP Inc. in second place behind Lenovo for unit shipments as of this 2019 Q2. HP’s ongoing struggles in the printer and printer supplies business, where HP has long been the market leader, has been under stress from third-party suppliers selling toner and ink at significantly lower prices. Reports are that HP’s printer business accounts for a whopping 75% of its total profits and roughly half of its total revenues.
Xerox started in 1906 as the Haloid Photographic Co. The photographic supply company in Rochester, NY, paved its way to mega-success in March 1960, when it shipped its first office copier. The Haloid Xerox contraption was the size of two washing machines and weighed 648 pounds. It also occasionally caught on fire. The Xerox copier’s core technology -— a process called xerography, invented by Chester Carlson — is still widely used in copy machines five decades later.
HP traces its origins to 1938 when Bill Hewlett and Dave Packard rented a garage in Palo Alto, CA. That year, they invented their first product: the HP Model 200A, an audio oscillator used to test sound equipment. The company became the pioneer of Silicon Valley, building its first computer in 1966 and the famous HP-35 in 1972 — the world’s first hand-held scientific calculator. Hewlett-Packard, split into two companies in 2014. HP Inc. got printers and PCs. HP Enterprise got servers and enterprise software.
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Marketwatch has some good data on why these firms are planning to hook up. They write that globally consumers will print 210 billion pages, down 20% from 2015. In 2018, U.S. consumers printed an average of 38.4 pages a month, down 40 pages per month in 2017. In addition to printing less, U.S. consumers have purchased 11% fewer inkjet printers so far in 2019.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.
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