15 December 2019 Business

Xerox makes its case to HP's shareholders

Xerox is trying to persuade HP shareholders that they will be better off with Xerox's management leading a joint company.

Xerox directors have been on the road to appeal to HP shareholders to back the Xerox takeover offer, even if the HP board has given the pitch the cold shoulder.

The approach is based on cutting costs and achieving sales synergies by harnessing the Xerox direct sales force to sell HP products. There will be a 20% reduction in the property portfolio, a big reduction in the number of outside suppliers and a 20% reduction in the number of skus carried.

By repeating the methodology used at Xerox and through these synergies, the combined company will free up $2 billion which would be reinvested in product development. It is a story about compelling value creation says Xerox, delivering more than analysts have predicted is possible for HP alone.

The presentation includes a chart to show little overlap in the print production areas, a sector which amounts to a total addressable market worth $95 billion. The overlap occurs in B3 cutsheet printing, in continuous feed colour inkjet and industrial print, namely 3D printing. However, Xerox is only just starting out in 3D while HP is well established. In continuous feed colour, HP has a significantly larger market presence with its T series machines than Xerox with Trivor, even without the closure of the Impika operation in France.

In cut sheet digital, Xerox has a portfolio that begins with light production presses leading to Iridesse and iGen, while HP has the Indigo portfolio. Elsewhere in the presentation, Xerox reckons the opportunity is there to sell its Freeflow workflow and XMPie software to drive the 10,000 Indigos installed worldwide. It believes the opportunity is there to offer the same combination to 50,000 HP large format installations. Neither is likely without ending development of HP’s own software suites.

Xerox, having promoted the opportunity in packaging, finds no overlap with HP's presence in packaging. Nor, according to the presentation, is there a Xerox presence in large format print. The Xerox salesforce will be able to sell the HP products to increase overall sales.

And the clear message is that the highly experienced Xerox management team will lead the combined business. There has been no response from HP.

HP has, however, held its hand up to inadvertently breaching US sanctions regulations relating to Iran. In November last year, HP bought Apogee, a UK dealer. Shortly after it took two service calls and as a result supplied toner worth £85.52 to Bank Saderat and had received £72.49 from Sepah Bank International shortly after the takeover relating to an existing service contract with Apogee. Both payments have been disclosed to the relevant authorities, says HP, and contracts with the banks have been terminated.

By Gareth Ward

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