Xerox Holdings is preparing to nominate up to 11 directors to HP’s board as its mission to push through its US$33 billion unsolicited takeover bid for the computer and print equipment business continues, the Wall Street Journal reports.
The newspaper also reports, citing people familiar with the matter, that in recent weeks Xerox bought a small stake in HP giving it the right to nominate directors for elections to be held at HP’s annual meeting later this year.
The deadline for nominations to HP’s board is Friday this week, the newspaper says.
This marks the latest in an ongoing stoush between Xerox and HP that has included multiple letters going backwards and forwards between the two companies with Xerox making offers, sweetening the deal and having finance approved all doing nothing to persuade HP’s board of directors that the union is a good idea.
The to and fro has raged since November last year when Xerox made the initial unsolicited offer to takeover HP which included paying HP shareholders $22 per share comprised of $17 in cash and 0.137 Xerox shares for each HP share.
Activist investor Carl Icahn weighs in
The takeover bid also came after a sustained push by activist investor Carl Icahn, who has a stake in both companies, described the proposal as a “no-brainer”, arguing a union would yield major profits for investors.
Xerox in its case for HP argued combining the two businesses was logical given the strengths of both businesses in the A3 and A4 markets, complementary footprint, deep cultural fit and shared DNA of innovation.
This did not wash with HP. The bid was roundly rejected by HP with chairman Chip Bergh and HP chief executive officer Enrique Lores saying it “significantly undervalues HP and is not in the best interests of HP shareholders”.
Letters between Xerox and HP have continued with Xerox vice-chairman and chief executive officer John Visentin urging HP to reconsider the deal before Xerox took the offer direct to shareholders.
Icahn, who has a 10.85 per cent stake in Xerox and a 4.24 per cent share in HP, also weighed in sending an open letter to HP shareholders urging them to push HP’s board of directors to accept the US$33.5b bid.
In the letter Icahn criticised HP for refusing to engage in mutual due diligence processes and questioned whether this refusal was about the preservation of “lucrative positions of the CEO and members of the board”.
“While this might sound cynical, over the last several decades as an activist I have made billions and billions of dollars not only for Icahn Enterprises but for all shareholders by standing up to managements and boards that have refused to do anything that would change the status quo, which might mean threatening their huge incomes,” Icahn wrote in November 2019.
“While there are many good and caring boards and managements, there also are many terrible ones that have cost shareholders dearly by failing to act in their best interests, as HP’s board and management seem to be doing now.”
In another twist, it was also reported by Bloomberg, that the Miami Firefighters Relief and Pension Fund were filing a lawsuit against Icahn for having prior knowledge about the potential HP/Xerox deal when buying shares in HP.
Xerox deal sweetened
In December Xerox vice chairman and chief executive officer John Visentin sweetened the deal for HP shareholders.
The new offer included US$17 per share in cash and 48 per cent of the pro forma of the combined company, which Visentin said was worth US$14 per share.
“By harvesting these synergies, which can only be realised with this combination, the new pro forma company will be both more profitable and better positioned to provide customers with a stronger mix of products, services and support than either company can do on its own,” Visentin said in the proposal.
“The value of the transaction goes beyond economics. In consolidating industries, first movers not only win but also have an opportunity to reshape the competitive landscape in an enduring way.”
The debate continued to rage and in January 2020 Xerox announced it had obtained a US$24 billion binding finance commitment from Citi, Mizuho and Bank of America to complete its value-creating combination with 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,” Visentin said.
“But it also became clear from our dialogue with your shareholders that you and your advisors have been questioning our ability to raise the capital necessary to finance our proposal.
“We have always maintained that our proposal is not subject to a financing contingency, but in order to remove any doubt, we have obtained binding financing commitments (that are not subject to any due diligence condition) from Citi, Mizuho and Bank of America.
“My offer stands to meet with you in person, with or without your advisors, to begin negotiating this transaction.”
Xerox deal rejected, again
But the deal was still rejected by HP with Burgh and Lores saying the binding financial commitment from the banks did not alter the fact the proposal still undervalued HP significantly.
“We reiterate that the HP board of directors’ focus is on driving sustainable long-term value for HP shareholders,” the letter read.
“Your letter dated January 6, 2020 regarding financing does not address the key issue – that Xerox’s proposal significantly undervalues HP – and is not a basis for discussion.
“The HP board of directors remains committed to advancing the best interests of all HP shareholders and to pursuing the most value-creating opportunities.”
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