Coronavirus: HP Laments Xerox Hostile Bid Amid Pandemic

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HP has written to its shareholders to argue that now is not the time for an unsolicited takeover, with Xerox’s ‘irresponsible capital structure’

HP has written a hard hitting letter to its shareholders, outlining its position as to why now is not the time for Xerox Holdings to be pursuing a hostile takeover.

The letter said the focus of the company should on “managing the unprecedented Covid-19 pandemic with urgency and a deep sense of care.”

And HP slated Xerox for continuing to pursue the takeover in light of the Coronavirus pandemic, and warned that “any complex, large-scale, highly leveraged transaction in the current economic environment could be disastrous for HP.”

Irresponsible bid?

“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,” said HP.

“Since Xerox launched its unsolicited exchange offer and nominated directors, the global social, economic and financial environments have changed radically,” said the HP letter. “Despite this, Xerox continues to advance its tender offer and its proposed slate of directors in an effort to force a combination.”

HP argues it should not have to “divert valuable time, attention and resources to a dialogue with Xerox about its proposed transaction.”

And it said that “any complex, large-scale, highly leveraged transaction in the current economic environment could be disastrous for HP, its shareholders and our entire ecosystem.”

“We have consistently expressed deep concerns about the irresponsible capital structure that is reflected in Xerox’s proposal,” HP added. “Their proposed structure 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.”

“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,” HP said. “Our duty now is to protect our organisation – and your investment. And that’s exactly what we are going to do.”

Earlier this month HP adopted another poison pill that will see HP CEO Enrique Lores receive 50 percent more in a pay out, if he is fired in the event of a successful hostile takeover.

That came after HP had once again this month rejected an improved takeover offer to HP’s shareholders (its second such hostile takeover offer), in an effort to bypass the PC maker’s board of directors.

Hostile takeover

Xerox had earlier this month increased its hostile offer price to $24.00 per share (from $22.00 per share), raising its original $33.5 billion takeover bid to $35 billion.

That came after HP’s board of directors had in January rejected an unsolicited takeover offer from Xerox, saying the deal “significantly undervalued” the PC maker.

Xerox had begun its hostile bid for HP just before Christmas, after it made good its threat to approach HP shareholders directly with its leveraged buyout offer.

Xerox had initially set a deadline of 25 November 2019 for HP’s board of directors to respond to Xerox’s $33.5bn buyout offer for the PC maker.

But HP’s board refused to engage with Xerox and failed to open its books so Xerox could conduct due diligence.

The battle had begun when activist investor Carl Icahn acquired a $1.2 billion stake in HP and pushed for the proposed union of Xerox and HP, arguing that a combination of the printer makers could yield big profits for investors.

Icahn is said to own 10.85 percent of Xerox and 4.24 percent of HP.

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Author: Tom Jowitt
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