Xerox Moves Forward In HP Bid – Nominates Executive, Woos Shareholders

Xerox 6500 in 1973.

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Xerox Holding Corporation's (NYSE:XRX) takeover bid for personal computer and office equipment manufacturer HP Inc (NYSE:HPQ) has taken a new turn today after the former filed a proxy statement with the Securities and Exchange Commission today to support its team of candidates that the company hopes will replace HP's existing board of directors. The move comes following HP's decision to add an additional director to its slate, as Xerox has now extended its list to match HP's. The new addition is the former chief executive officer and chairman of Alliant Energy Corporation Mr. Errol B. Davis, Jr - an executive with experience in mergers and acquisitions.

Xerox Nominates Errol Davis Jr. To Its Slate of Nominees Intended To Replace HP's Board of Directors

As we enter March's second week, the takeover battle between Xerox and HP will soon have completed more than half a year, as both companies have repeatedly gone back and forth with proposals, rejections and counterproposals. The Norwalk, Connecticut-based corporation whose name became synonymous with office printing at one time believes that HP Inc's management is ignoring a serious potential for synergy and cost savings through a merger.

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Xerox has identified cost-based synergies through a merger with HP that it believes have the potential to deliver at least $2 billion worth of saving within two years of the deal being completed. The company hopes to achieve this objective through making changes in the combined entity's seven different operating areas which are: shared service centers, manufacturing, IT and R&D, delivery, supply chain and procurement, organizational design and benefit and operating expenses.

Xerox also promises to provide HP's shareholders with a 29% premium over the company's $17/share volume-weighted average share price Additionally, Xerox also argues that HP's shareholders stand to gain a $14/share of equity upside prior to the realization of any cost-based synergies.

Xerox's proposal to HP made on December 9, 2019; Xerox Holding Corporation

Executive has experience in managing mergers and acquisitions - move comes after HP struck down Xerox's revised proposal last week

At the start of February, Xerox, in its attempt to further woo HP's shareholders increased the proposal's offer price to $24/share from the earlier offer's $22/share price. Based on current shares outstanding, the new offer represents roughly $34 billion being offered to HP's shareholders cumulatively and exceeds the copy-and-printer-maker's own market capitalization significantly.

Despite Xerox's repeated offers, HP's management has repeatedly stated that the terms of the deal undervalue HP and as a result, are not in the best interest of its shareholders. In its latest rejection, made in response to Xerox's updated offer, HP's chief executive officer Mr. Chip Bergh reiterated this stance and stated that given the fact that Xerox's offer vastly exceeds its market value and resources, the firm's need to take on additional debt to fund the deal will leave the new entity's shareholders and management heavily levered.

HP, for its part, has promised to reduce operating costs and drive up market penetration and revenues from its operating segments. The implied revenue growth is based significantly on HP's estimates that the personal systems market will grow to $330 billion by the end of the calendar year 2022. Our estimates suggest that at that point in time if the company is able to maintain its current market share then it stands to effectively double sales from personal systems.

Erroll B. Davis, Jr.'s profile on

Xerox (NYSE:XRX) to conduct a meeting to convince shareholders about amending charter

In addition to Mr. Davis, Jr, Xerox's list of nominees to HP's board consists of executives from different areas of the industry. The list of candidates includes Betsy Atkins, George Bickerstaff, Carolyn Byrd, Jeannie Diefenderfer, Kim Fennebresque, Carol Flaton, Matthew Hart, Fred Hochberg, Jacob Katz, Nichelle Maynard-Elliott and Thomas Sabatino, Jr.

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In its preliminary proxy statement filed with the Securities and Exchange Commission Xerox notes that:

We believe that a vote FOR the election of each of the Xerox Nominees will send a clear and strong message to the HP Board that HP stockholders want the HP Board to:

  • focus on creating stockholder value;
  • objectively evaluate the Proposed Transaction with Xerox; and
  • negotiate in good faith with Xerox regarding the Proposed Transaction.

The company goes on to argue that:

Xerox believes that the election of the Xerox Nominees will demonstrate that HP stockholders support the Proposed Transaction and establish an HP Board that is more likely to act in your best interests. We believe that your vote for the Xerox Nominees will send a clear and strong message to the HP Board to negotiate with Xerox regarding the Proposed Transaction and, if the newly elected directors deem it appropriate in the exercise of their fiduciary duties, to approve the Proposed Transaction.

Xerox Holding Corporation also provided all information related to its HP takeover proposal on a new domain with details related to the board nominees, its shareholder presentations and news releases. The domain is as listed with the Securities and Exchange Commission.

The new domain will serve to convince its shareholders about the merits of amending the Xerox charter in order to authorize management to increase authorized shares and issue/exchange Xerox Holding Corporation shares for those of HP Inc. Xerox has approximately 212 million shares outstanding at the time of its filing with the S.E.C, and the company intends to exchange roughly the same amount of shares for all of HP's 1 billion shares, with an added eight million to reflect shares to reflect the new entity's authorized shares precisely.

Should the deal go through, HP's existing shareholders will have 48% ownership of the new entity that Xerox believes will have a $44 billion equity value at an 8.8x post-acquisition price-to-earnings multiple.

Updated on 4:23 PM ET with details about XplusHP and Mr. Davis' profile. 

Update 2-March 10, 3:02 PM ET:- Xerox files a preliminary proxy statement with U.S. government and announces intention to call a shareholder meeting to seek approval for charter ammendments. 

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