HP says “now is not the time” for Xerox’s acquisition proposal

In a letter issued to its shareholders, HP has voiced out that now is not the time for the company to be involved in Xerox Holdings Corporation’s acquisition proposal of the former.

According to the company, it will currently be directing its focus on managing the unprecedented COVID-19 pandemic with urgency and a deep sense of care.

“We are committed to doing everything we can to support those in need and respond to the challenges at hand. This pandemic is still unfolding, and it will impact people, the economy and business activities for months, if not longer,” the letter, penned by HP CEO Enrique Lores and HP board of directors chair Chip Bergh stated.

“Our primary responsibility in this difficult period is to focus on HP’s business and address the needs of our ecosystem of stakeholders around the world, including our shareholders, our millions of customers, our 250,000 partners, and our team of approximately 55,000 employees.

“We are actively managing many challenges, including assuring the health and safety of our people, addressing supply chain disruptions, monitoring and addressing our customers’ liquidity needs and, more broadly, ensuring HP is well-positioned to support people working remotely.”

The letter also identified that since Xerox launched its exchange offer and nominated directors, the global social, economic and financial environments have changed radically.

“Despite this, Xerox continues to advance its tender offer and its proposed slate of directors in an effort to force a combination. It is important for shareholders to understand that… we believe that we should not divert valuable time, attention and resources to a dialogue with Xerox about its proposed transaction,” Lores and Bergh said.

“Any complex, large-scale, highly leveraged transaction in the current economic environment could be disastrous for HP, its shareholders and our entire ecosystem. While we remain open-minded about M&A as a tool to add value for HP shareholders at the right time and on the right terms – it’s abundantly clear that now is not that time.

“Our focus must now be on ensuring that we remain strong and resilient throughout this crisis while continuing to position the business for the opportunities ahead. This includes continuing to advance our leadership in our core businesses and disrupting new industries with breakthrough innovation, while significantly reducing our costs to become a more agile company.

They further expressed their concerns about the potential Xerox acquisition, saying that the Xerox proposal is an “irresponsible capital structure” which would “saddle HP with a level of debt that it could not support”, potentially leaving the company without the cash needed to effectively run the business.

“We believe this would put the company at risk of being in financial distress immediately upon consummation of Xerox’s proposed transaction. On top of this, the highly leveraged capital structure Xerox wants to implement could threaten the stability of the entire HP ecosystem and the livelihoods of our employees, customers and partners,” Lores and Bergh said.

“Even if Xerox is able to maintain its bridge commitments and raise additional equity financing, which is far from certain in the current climate, there are many conditions to its proposal that create uncertainty. These include regulatory approval across many countries, funding of the bridge commitments, new funding for the ongoing business, and Xerox’s securing approval of the transaction by its own shareholders.

“We believe the Xerox proposal fundamentally undervalues HP, threatens the future of both companies, and creates an unacceptable level of risk to both HP and Xerox shareholders. Our duty now is to protect our organisation – and your investment. And that’s exactly what we are going to do.”

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