HP $15 Billion Share Buyback To Thwart Xerox Advances

HP board announces ‘financial value creation plan’ that will see it buy back billions in shares, to defeat Xerox’s offer that ‘meaningfully undervalues HP’

HP has announced its ‘strategic and financial value creation plan’ as part of the PC maker’s fightback against the hostile approaches from Xerox Holdings.

Part of that strategy has seen HP’s board of directors announce that it is expanding its share buyback program and returning billions of dollars to shareholders.

It comes after HP also adopted last week a “poison pill” shareholder rights plan, in a further effort to fend off Xerox’s advances.


Mixed financials

HP also announced this week its latest financial results, which showed declines in both profits and sales.

For the first quarter ending 31 January, HP posted a net profit $678m, down from a net profit of $803m a year earlier.

There was also a modest dip in sales, as revenues for the quarter came in at $14.6bn, down from $14.7bn in the same year-ago quarter.

But this disappointing financial performance came alongside a “multi-year strategic and financial value creation plan”.

Under this value creation plan, HP expects to generate $4.7 billion to $5.1 billion of non-GAAP operating profit in fiscal 2022. It also expects $10.7 billion to $11.7 billion of cumulative free cash flow in fiscal 2020 through fiscal 2022; and $1.2 billion structural cost reductions in fiscal 2022 (last October HP said it would carry out a massive jobs cull in the lead up to Christmas period, by axing of 9,000 jobs).

“HP is out of the gate strong in Q1, with outstanding earnings and a robust plan to create significant value for shareholders,” said Enrique Lores, President and CEO of HP. “Our three-year financial targets reflect a company at the top of its game, combining the industry’s best innovation with disciplined cost management and aggressive capital returns to support a compelling investment in both the short and long term.”

“Our commitment to HP shareholders is unwavering and it’s abundantly clear the revised Xerox proposal meaningfully undervalues HP, creates significant risk and compromises the future of our company,” Lores added.

Shareholder buyback

As part of HP’s value creation plan for shareholders, its Board of Directors has authorised a capital return program that will target the return of capital of approximately $16 billion to HP shareholders during fiscal 2020 to fiscal 2022.

This represents approximately 50 percent of HP’s current market capitalisation.

As a further inducement, HP has also increased its total share repurchase authorisation to $15 billion, up from the $5 billion share repurchase authorisation announced in October 2019.

HP expects implementation of this capital return program to include the repurchase of at least $8 billion of HP shares over 12 months.

HP also took the opportunity to have another dig at Xerox, after it called its hostile takeover proposal “flawed, irresponsible, and overstated.”

“HP believes there is merit in industry consolidation which is why it acquired Samsung Printing in 2017,” it said. “However, consolidation must benefit HP shareholders. The revised Xerox proposal, announced on February 10, 2020, meaningfully undervalues HP, creates significant risk, and compromises HP’s future.

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 $34 billion.

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

Before Christmas Xerox had begun its hostile bid for HP, 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.

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

The hostilities began after 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.

Activist shareholder

Carl Icahn has a reputation as an activist shareholder who invests in companies and demands a shakeup in order to maximum shareholder (and his) returns.

Icahn for example made life very difficult for Michael Dell in 2012 and 2013, when he sought to derail his attempts to take Dell back into private ownership for example.

HP it should be remembered was formed in 2015, by the split of Hewlett-Packard into two separate companies.

HPE retained the core enterprise business, such as servers, storage and networking, while HP Inc took on the PC, printer and hardware unit.

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