Xerox Taking Over Hewlett Packard

The Xerox Corporation is setting aside all niceties in its desire to see the company merge with Hewlett-Packard and has taken those desires hostile. It announced on Thursdays that the company will nominate eleven new directors that will replace the current board at HP during its next shareholder meeting. Xerox has been trying to takeover HP for months but has seen offers twice being rejected by the company. In response, the Hewlett-Packard Company stated that the proposal by Xerox undervalues the Hewlett-Packard Company significantly and places risk to its shareholders. It further brought up concerns relating to the business strategy employed by Xerox mentioning that its revenue saw a 10% drop in 2019.

However, Xerox believes that the combining of the two companies, two that compete directly against each other, will have a substantial impact on costs. The nominations to replace its board is nothing more than a tactic that is self-serving for Xerox. The takeover, if successful would see the two American giants merge but any deal will be complicated by the mere fact that as a company, HP is three times the size of Xerox and has an estimated $32 billion market value, whereas Xerox, on the other hand, has a market value of $8 billion.

Market Valuations

Its latest offer placed a market value for HP at $22 per share or $33.5 billion in total. Prior to Xerox entering the takeover bid, its market share was estimated at $27 billion. In in attempts to generate the needs cash for the takeover Xerox has been selling other assets and to date, has generated $2.5 billion, that is in addition to the announced $24 billion it has lined up for the takeover. If the two companies are to merge, it will make sense for both as each have left the printing side of its business as profits dwindle. Yet, after it’s HP Enterprise split in 2015, HP as a company has grown much faster than investors thought it would, even though the last few quarters have seen the company struggle.

Although Hewlett-Packard controls a large portion of the personal computer business, less people are turning to the company when buying ink for their printers. This was an instrumental part of its business that has been a substantial contributor of its profits as the company sold printers at a loss but made that up ten-fold through ink-sales. However, with the growth and advances in smartphones, fewer people are using printers and of those that do, many turn to other sink suppliers who often are cheaper. As a result, HP is reducing its workforce by 2022 by as much as 9,000. The move, which was announced by HP’s CEO, Enrique Lores, was a bold step towards the companies next chapter.