Via Financial Times

HP’s board of directors has unanimously rejected a $22-a-share bid from rival Xerox, while leaving the door open to “a potential combination” of the two companies.

Carl Icahn, the veteran activist investor, owns stakes in both companies, and has described a tie-up as “a no-brainer”. Launched on November 5, Xerox’s unsolicited cash-and-shares offer represented a premium of about 20 per cent to HP’s closing share price. 

But in a letter to Xerox chief executive John Visentin sent on Sunday, HP’s board dismissed the bid, saying it “significantly undervalues” the company.

Still, the HP board signalled its openness to a transaction, while demanding more information about Xerox’s business prospects and the scale of any potential synergies.

PC sales accounted for nearly two-thirds of HP’s $58bn revenues in 2018. But the smaller printer and ink cartridge business is far more lucrative, bringing in 71 per cent of the company’s operating profits last year.

Any proposed tie up with Xerox, which makes printers and photocopiers, would have to contend with “significant questions . . . regarding the trajectory of [the Xerox] business,” HP’s letter said. 

Xerox’s annual revenue had fallen by nearly 10 per cent since June 2018, on a trailing 12-month basis, and now stood at $9.2bn, the letter added.

HP has acknowledged having “conversations . . . from time to time” about a tie-up with Xerox. The computer maker said it had already made known its “fundamental” questions about Xerox’s direction “in connection with our prior requests for diligence”.

With “substantive engagement” from Xerox management, the HP board said it would be in a position to “quickly” evaluate the merits of a potential deal.

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In making an unsolicited approach for its larger rival, Xerox has been trying to capitalise on a rally in its shares, which have risen 47 per cent in the past year.

HP has shed about 14 per cent of its value over the same period, even allowing for a November rally after news of the bid interest emerged.

Mr Icahn disclosed a 4.24 per cent stake in HP to the Wall Street Journal last week, stating that companies “in shrinking industries tend to decline much more slowly than many market participants may predict, while continuing to generate substantial amounts of cash.”

He also holds a 10.6 per cent stake in Xerox, and said he expected a combination would unleash synergies.