10 November 2019 Business

Xerox takes first shot in HP takeover bid

In what might result in an Ouroboros like deal, Xerox says it wants to buy HP, while HP might be lining up its own tilt at Xerox.

The first salvo has been fired in what could become a bitter battle between HP and Xerox.

Pundits had tipped Xerox as a likely acquisition target for HP, but only hours after Xerox had sold the final 25% stake in Fuji-Xerox to its Japanese partner, Xerox had made an approach to takeover HP, a much larger company.

HP has so far politely noted the Xerox interest which has pushed HP’s share price to $22 each, slightly below the $23 a share that Xerox would offer. Xerox has said that its bid is fully supported and it has the resources. These are not from the money received from Fuji, which has paid $2.3billion for the share in the joint venture that it did not own.

The unwinding of that joint venture is unlikely to have any immediate impact on the products that Xerox can sell, including the Versant and Iridesse which are developed and manufactured in Japan. The longer term is another question. Xerox continues to supply the iGen platform from the US and has moved into sheetfed inkjet printing as a long term successor to toner.

The new status quo enables either party to enter new OEM arrangements, but this is not something that happens over night. Xerox had already struck a supply deal to take HP office printers into its sales channel as part of a major overhaul of its distribution in North America.

And Fuji-Xerox already supplies products into the Asia Pacific market, continuous feed inkjet presses for example, that are not available through Xerox. Iridesse was available through Fuji-Xerox for almost a year before Xerox introduced the six-colour digital press.

But the core office market is on the slide as digital distribution of documents increases and as competition in the office space increases. This has had an impact on sales for both companies, and provided the opportunity for the takeover of Xerox by a team led by Carl Icahn and Darwin Deason. They installed former HP executive John Visentin as CEO.

Now HP appears vulnerable to the same action. In its latest results, it announced a restructuring of thousands of jobs worldwide and the appointment of Enrique Lores as its new CEO. He has yet to announce his vision and strategy for the business. HP’s financial year closed at the end of October and it is not expected to announce results until December.

A successful takeover of HP would give Xerox a distribution network in Asia which it would otherwise need to fund through its own resources to replace the Fuji-Xerox operation. And Asia is considered the region with the most healthy prospects for growth in coming years.

The two companies are not evenly matched. Xerox has annual sales around $10 billion and a market capitalisation of $.88 billion at current value. HP has sales of almost $60 billion and a value of $27 billion ahead of the Xerox offer.

The majority of revenue for Xerox comes from print engines, though it has been developing interests in 3D printing and new styles of digital print. Its production print business generated sales of $424 million in the last financial year.

HP has a broader spectrum of print products, from desktop inkjet through to large format and high speed 2 metre inkjet presses for corrugated boxes, with Indigo at its heart. It does not break out revenue from the production print sector, though revenue from Indigo is reckoned to be around $2 billion alone. Unlike Xerox, HP is also a major supplier of PCs and servers.

By Gareth Ward

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Indigo factory

Xerox is bidding for HP in a move that has yet to elicit a response from HP, but which is likely to be rejected. It is timed as new CEO Enrique Lores takes the helm and is yet to explain his vision for the business.

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