HP Implements Punitive CEO Pay Off To Discourage Xerox

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Another poison pill tactic to discourage Xerox’s advances, sees HP management implementing a stiff pay out for CEO, post-takeover

HP has implemented another tactic to actively discourage Xerox Holdings from pursuing its hostile takeover effort of the PC maker.

It has implemented a new formula 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.

Last week HP had once again 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.

Increased payout

The new HP CEO payout formula was revealed in HP’s SEC filings last week.

Bloomberg reported that the new formula would mean if Enrique Lores were fired, he would make approximately $7.2m in a severance payout if Xerox took control of HP.

The new formula effectively doubles his salary and his projected bonus for the year.

It should also be remembered that HP has in addition implemented a ‘poison pill’ plan to stop investors from amassing more than 20 percent stake in the company.

Essentially if anyone acquires more than 20 percent of HP’s stock, the company will issue discounted stock to its other shareholders, thereby diluting Xerox’s stake.

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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