Xerox Holdings Corp. is reportedly in talks with HP Inc. to acquire the computer and printer giant, a deal valued at more than $27 billion. And it’s a deal that could mean good things for Xerox’s Webster campus, one local analyst said.
In a move the Wall Street Journal calls “audacious,” Xerox has made a cash-and-stock offer for California-based HP, several media outlets have reported. The news comes on the heels of Tuesday’s announcement of a truce with Fujifilm Holdings Corp. that will result in the Japanese company’s buyout of Xerox’s 25 percent stake in Fuji Xerox for some $2.3 billion.
Xerox Chairman and CEO John Visentin said the company would use the funds from the sale to pursue mergers and acquisitions in core and adjacent industries, return capital to shareholders and pay down its $550 million in debt, which matures in December 2019.
“This is a huge deal. I look at Xerox management as having played defense for nearly 40 years, and for at least 20 years Xerox management’s principal function was to see how steadily they could shrink the company. Essentially, Xerox management was playing defense, was watching their business shrink; all of them got comped very well while Xerox was in constant restructuring mode for the better part of 20 years,” said Brighton Securities Inc. Chairman George Conboy. “With this presumed deal, you have Xerox management making a bold stroke, a very bold stroke. In numbers, Xerox’s annual sales now are $9 billion, Hewlett Packard’s are $58 billion.”
The Wall Street Journal reports that Xerox’s board discussed the possibility of an HP acquisition Tuesday and has an informal funding commitment from a major bank. Xerox has a market cap of $8.05 billion, compared with HP’s market value of $27.27 billion.
CNBC is reporting that the offer is a “real premium” to HP’s stock price, and the two companies are looking at synergies of at least $2 billion. Xerox reportedly has explored the possibility of an HP acquisition in the past.
Under Visentin’s lead, Xerox’s stock (NYSE: XRX) has risen more than 84 percent in the last year. Visentin in a phone call Tuesday told CNBC that Xerox was in “attack mode” as far as possible mergers and acquisitions.
“For 18 months we have new management put in by activist investors. Management was placed there by shareholders—not anonymous shareholders, not shareholders with small votes, big shareholders who care about the company: Carl Icahn and Darwin Deason, who combined own about 15 percent,” Conboy said. “I’m sure that when Icahn and Deason put management in and kicked out the do-nothing board of directors, they said ‘get this company growing.’ So for a change, we’re seeing Xerox management play offense and not defense.”
Conboy noted HP’s large market share for computers but said the company continues to make a lot of printers and sell a lot of printer supplies, which could play handily in Xerox’s business locally.
“That’s been a very profitable and recurring part of Xerox’s business, the consumables business,” Conboy explained. “We could see a meaningful jump in employment here at the Webster plant because there’s a meaningful toner operation out there.”
In heavy trading Wednesday, Xerox shares were up more than 3 percent at $37.53.
*HP late Wednesday afternoon released the following statement:
“As reviewed at HP’s most recent Securities Analyst Meeting, we have great confidence in our multi-year strategy and our ability to position the company for continued success in an evolving industry, particularly given the multiple levers available to drive value creation.
Against this backdrop, we have had conversations with Xerox Holdings Corp. from time to time about a potential business combination. We have considered, among other things, what would be required to merit a transaction. Most recently, we received a proposal transmitted yesterday.
We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline and an eye towards what is in the best interest of all our shareholders.”