Personal computer firm HP has rejected a takeover approach from printer maker Xerox, despite pressure from billionaire investor Carl Icahn to agree a merger.
HP’s board of directors said on Sunday that they had unanimously rejected an unsolicited proposal from Xerox Holdings Corporation. They concluded that the $33.5bn (£26bn) offer undervalued HP and was not in the best interests of shareholders.
HP’s chief executive, Enrique Lores, and chairman Chip Bergh told Xerox they were also concerned that the deal would leave the combined company with “outsized debt levels”. But they also said they recognised “the potential benefits” of consolidation, suggesting the two firms should keep talking.
“We are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox,” wrote Lores and Bergh. “However, as we have previously shared in connection with our prior requests for diligence, we have fundamental questions that need to be addressed in our diligence of Xerox.”
Xerox offered to pay $22 per HP share, made up of $17 of cash plus 0.137 of its own shares each. That was a 20% premium on HP’s share price before news of the deal broke earlier this month.
Xerox is valued at $8.5bn (£6.6bn), so its interest in acquiring larger rival HP was unexpected. Outlining the proposal, Xerox chief John Visentin suggested it could deliver cost savings of $2bn per year.
But Lores and Bergh questioned the merits of the proposal in their response to Xerox, saying: “We note the decline of Xerox’s revenue from $10.2bn to $9.2bn (on a trailing 12-month basis) since June 2018, which raises significant questions for us regarding the trajectory of your business and future prospects.”
They are now seeking “substantive engagement from Xerox management and access to diligence information on Xerox” to see if a transaction is possible.
Icahn has already concluded that a merger would make sense for investors. He has built up a 4.24% stake in HP alongside his 10.6% stake in Xerox.
Xerox’s strength is in printers for businesses, while HP has a stronger focus on the home market. Icahn sees clear synergies between two fading one-time tech giants. “I think a combination is a no-brainer,” he told the Wall Street Journal last week.
“I’ve found over the years that these types of companies that are in shrinking industries tend to decline much more slowly than many market participants may predict, while continuing to generate substantial amounts of cash,” he added.