The Wall Street Journal has reported that Xerox is considering making a cash-and-stock offer for HP. Xerox itself told me that it does not comment on rumours, though HP has confirmed that it did receive a proposal on 5th November 2019.
HP released a statement in which it said: “We have had conversations with Xerox Holdings Corporation (NYSE: XRX) from time to time about a potential business combination. We have considered, among other things, what would be required to merit a transaction.”
The WSJ also reports that Xerox has further funding from a major bank so the idea is that Xerox will take this funding plus the $2.3bn from selling its stake in the Fuji Xerox joint venture to Fujifilm – a deal that has not yet been finalised – and will use this money to buy HP, which according to the WSJ, has a market value of about $27 billion.
I can’t think of any other company that, having just put to bed a disastrous take-over effort last year, would immediately embark on something similar this year, though naturally I hope that it will come with another round of entertaining stories. At this stage, I have to say that I really admire Xerox’s commitment to modern journalism, not to mention the sheer chutzpah in coming up with such a crazy and desperate scheme.
Xerox, which is now led by CEO John Visentin, has undertaken a major cost cutting exercise that has seen its share price rise steadily. Nonetheless, I think that Xerox still has significant structural problems, coupled with a general failure to really capitalise on its IP in recent years, so that it has a long way to go – all of which I’ve written about in more detail here.
HP, on the other hand, has proven extremely adept at exploiting its available IP, creating both production inkjet presses and a range of commercial 3D printers out of thermal printhead technology that was initially designed for desktop printing. It is true that its figures have slipped in recent months, and that its share price is down. But HP has a new CEO, Enrique Lores, who has committed to implementing a restructuring plan in an effort to turn this around. He’s literally only just started in the job so it’s far too early to judge how successful he might be with that.
HP went on to say in its 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.” However, it continues: “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.”
There’s an obvious benefit to the Xerox shareholders but it’s really hard to see what extra value Xerox could bring to the HP party. If anything, it seems more likely that HP would take over Xerox, which now looks like a much more attractive take-over target since tidying up its messy arrangements with Fuji Xerox.
Major companies like Xerox and HP are more than just financial vehicles for the share holders to get rich on, and more than just figures on a balance sheet. These companies are built out of people and ideas, shaped by their beliefs and values. To survive, they have to really mean something, to their staff, and more importantly, to their customers. Xerox started off 2018 by trying to sell itself to Fujifilm, and now appears to be closing 2019 with a crazy scheme to take over HP. All of this suggests to me that there is something so fundamentally broken about Xerox that only aligning itself with another major player can fix it.