24 February 2020 Business

HP fires back at 'flawed' Xerox proposals

HP has given a fulsome response to Xerox calling its takeover plan flawed and announcing plans to reward shareholders that stick with the company.

Last night HP fired a broadside against corporate raiders from Xerox, one that it hopes will put an end to attempts at persuading shareholders to back the takeover plan.

In what HP calls a Strategic and Financial Value Creation plan, the company sets out an enlargement of its share repurchase ceiling to $15 billion (it expects to spend $8 billion buying its shares in this way), and to return $16 billion over the next three years to shareholders.

It is on course to achieve $1.2 billion of savings a year and plans to grow across its divisions, from personal computing to high end digital printing. In the 2022 financial year, HP will achieve an operating profit of $4.7-5.1 billion.

In Q1 of this year, revenue was marginally down on the same period last year at $14.6 billion (£14.7 billion) with operating profit at $700 million ($800 million). President and CEO Enrique Lores was able to claim “this showed a company that is at the top of its game” and one that represented “a compelling investment for the short and long terms”.

In contrast, the Xerox offer is flawed and “meaningfully undervalues HP, creates significant risk and compromises the future of our company”. Xerox sales in print are falling, the deal uses a different multiple to value Xerox compared to HP and would use HP's strong balance sheet to create an irresponsible capital structure.

There is an olive branch:HP is reaching out to Xerox to explore if there is a combination that creates value for HP shareholders that is additive to HP's strategic financial plan." In short, don’t hold your breath, as in presenting the plan to analysts the company says it will continue to consolidate “only when there is a path to create value for HP shareholders”. Intriguingly HP's response does not critique Xerox's thinking about the strategy underpinning its logic for combining the two businesses.

HP is projecting growth across its graphics sector which will balance the expected fall in revenues from home printing. The focus continues to be on leading the analogue to digital transition. This means growth or more that 25% in packaging, 9% in textiles, 7% in labels, 4% in commercial printing and 3% in sign & display.

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HP has hit back at Xerox plans to issue an offer direct to shareholders in the coming weeks. The proposals carry significant risk, says HP, while its own reorganisation will return significant value to shareholders over the next three years.

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