HP snubs takeover bid in damning letter to Xerox board

Print giant says it is still "open to exploring" potential merger

HP has shot down an initial takeover bid from rival print vendor Xerox, but has left the door open for a possible merger between the pair.

The print vendor claimed that Xerox's $33.5bn offer "significantly undervalues" the company.

In a letter to Xerox's CEO John Visentin, published on Sunday, HP wrote that its board of directors unanimously voted against the merger, claiming that it undervalues the company and is not in the best interest of HP shareholders.

"In reaching this determination, the board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsized debt levels on the combined company's stock," HP added.

HP also questioned Xerox's "future prospects", pointing to a large decline in the print vendor's revenues on a trailing 12-month basis, which shows sales fell from $10.2bn to $9.2bn since June 2018.

In its letter to Xerox, HP did not rule out a deal with the rival print vendor in the future, claiming that it is still "open to exploring" the value of a possible merger.

"We believe it is critical to engage in a rigorous analysis of the achievable synergies from a potential combination. With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction," HP added.

The Wall Street Journal first reported on 5 November that Xerox was plotting a takeover bid for HP. HP had a market cap of $27bn at the time of the offer, but the letter from HP's board of directors is the first time an offer price (of $33.5bn) has been mentioned.

The market has reacted positively to a possible union between HP and Xerox, with HP's share price spiking by as much as 17.8 per cent in the days after news of the takeover offer first emerged and Xerox's shares increasing by 13 per cent.

Xerox investor Carl Icahn recently revealed that he also holds a small stake in HP, and has openly insisted that an HP-Xerox merger is the best way forward for both vendors.

Both Xerox and HP are in transitional phases, with the former recently announcing plans to sell its 25 per cent stake in Fuji Xerox after a merger with Fuji disastrously fell through. HP meanwhile announced it would axe 9,000 staff globally including its regional levels of management.