In what portends to the beginning of a contentious courtship, Xerox Holdings Corp. management responded harshly to the rejection of its proposal to acquire rival HP Inc. Xerox vice chairman and CEO John Visentin advised HP board members Enrique Lores and Chip Bergh, if a “friendly” merger agreement could not be reached quickly, Xerox would take it’s case directly to the shareholders.
Xerox offered $33.5 billion in cash and Xerox shares for the PC and printer maker, which the HP board responded “significantly undervalues” HP. The Xerox offer breaks down to $22.00 per share, comprising $17.00 in cash and 0.137 Xerox shares for each HP share. Since then, activist shareholder Carl Icahn, in an interview with the Wall Street Journal, stated he is in favor of the combination. Most significantly, Icahn owns a 10.6% stake in Xerox and a previously undisclosed 4.24% position in HP.
Yesterday, Xerox issued a letter in response to HP rebuff, which is reproduced below:
Dear Chip and Enrique,
We were very surprised that HP’s Board of Directors summarily rejected our compelling proposal to acquire HP for $22.00 per share, comprising $17.00 in cash and 0.137 Xerox shares for each HP share, claiming our offer “significantly undervalues” HP. Frankly, we are confused by this reasoning in that your own financial advisor, Goldman Sachs & Co., set a $14 price target with a “sell” rating for HP’s stock after you announced your restructuring plan on October 3, 2019. Our offer represents a 57% premium to Goldman’s price target and a 29% premium to HP’s 30-day volume weighted average trading price of $17.
Moreover, our offer is neither “highly conditional” nor “uncertain” as you state. There will be NO financing condition to the completion of our acquisition of HP.
While we are glad to see that HP’s Board of Directors acknowledges the substantial merits of a business combination between Xerox and HP and are open to exploring the value opportunity for our respective shareholders, your response lacks a clear path forward. You have requested customary due diligence, which we have accepted, but you have refused to agree to corresponding due diligence for Xerox. Any friendly process for a combination of this type requires mutual diligence—your proposal for one-way diligence is an unnecessary delay tactic. In light of favorable markets and terms, Xerox is determined to capture the compelling opportunity for our respective shareholders and strongly encourages HP’s Board of Directors not to sanction further delay in light of our extensive discussions to date.
Xerox remains willing to devote the resources necessary to complete mutual due diligence over the next three weeks and confirm the substantial cost and revenue synergies that we both believe could be achieved through a combination.
The Xerox Board of Directors is determined to expeditiously pursue our proposed acquisition of HP to completion—we see no cause for further delay. Accordingly, unless you and we agree on mutual confirmatory due diligence to support a friendly combination by 5:00 p.m. EST on Monday, November 25, 2019, Xerox will take its compelling case to create superior value for our respective shareholders directly to your shareholders. The overwhelming support our offer will receive from HP shareholders should resolve any further doubts you have regarding the wisdom of swiftly moving forward to complete the transaction.
We look forward to your prompt response.
Vice Chairman and CEO
Xerox Holdings Corporation
Citigroup Global Markets Inc. is acting as Xerox’s financial advisor and King & Spalding LLP is providing legal counsel to Xerox and the board of directors. Willkie Farr & Gallagher LLP is providing legal counsel to Xerox’s independent directors.