After months of conflict, negotiations and angry correspondences, print and digital services company, Xerox has finally dropped its $35 billion bid to takeover computer hardware giants, Hewlett Packard (HP). According to Xerox, it was only dropping the bid because of the global coronavirus pandemic that has rendered any continuation unreasonable.
This comes after the printer maker tendered its last bid which valued Hewlett Packard at $35 billion and offered each HP stakeholder $18.40 per share as well as 0.149 of Xerox’s shares. The offer was set to expire on April 21 before Xerox suddenly backed out.
“The current global health crisis and resulting macroeconomic and market turmoil caused by COVID-19 have created an environment that is not conducive to Xerox continuing to pursue an acquisition of HP Inc,” Xerox said in a statement.
Accordingly, we are withdrawing our tender offer to acquire HP and will no longer seek to nominate our slate of highly qualified candidates to HP’s Board of Directors.
Xerox
The company said dropping the bid became necessary as it hoped to prioritize the health, safety and well-being of its employees, customers, partners and other stakeholders. It said it also aligned with its broader response to the covid-19 pandemic which overrides every other consideration.
This development brings an end to months of hostility and bile and some may say squabbling between the two tech giants, one intent on taking over the operations of the other.
Xerox vs HP saga
The Xerox vs HP saga began in early November. It began, as most sagas do, as a rumour about a proposed take over. While many were still trying to make sense of such a rumour, HP itself confirmed it has received a proposal from Xerox and would act on it. That initial offer reportedly put HP’s share price at $22 per share which therefore valued HP at about $27 billion
Later that month, HP announced that it has turned down the bid for the main reason that it significantly undervalued the company. The HP board also expressed its doubt about Xerox’s ability to finance such an acquisition while maintaining that HP was doing very fine and not in need of saving.
But Xerox won’t be deterred, going ahead to make two more offers. In January, it improved its offer from $22 to $24 per share which valued the company at $34 billion. It also threatened to bypass the board and deal directly with shareholders if HP remained adamant.
When that too failed, Xerox made its final bid (which was mentioned above) in March. But before this latest bid could expire, the company has pulled out of the protracted battle. But was Xerox ever really equal to the task?
The dog and the elephant
While Xerox has indeed seemed like the ‘aggressor’ in the proceedings, even threatening to bypass Hp’s board, it hardly came across as a company that could easily buy over HP. For one, its market capitalisation stands at about $3.8 billion. HP has more than 6 times that figure with a market capitalisation of $25 billion.
Despite the enormous difference, a bullish Xerox however claimed the deal was the best thing that could have happened to HP at this time. It insisted that some members of HP board already favoured the acquisition and called the continued rejection a ‘disservice’ to the shareholders.
HP on its part has always questioned Xerox’s capacity to execute a move of such magnitude, insisting that the debt profile of the new company would be so high, it would put it in bad financial position. Furthermore, its board has always insisted the company’s business is in perfect shape and don’t need to change.
So why is the dog nibbling at the foot of the elephant?
Well, according to reports, Xerox has witnessed dwindling fortunes in recent times with ever crashing revenue. The result is that its market capitalisation that stood at about $8 billion in November now stands at about $3.82 billion.
Bloomberg also reports that Xerox believes it can only guarantee its future through an acquisition. thus it believes that combining its strength with HP’s would yield $2 billion in cost savings and more than $1 billion in additional revenue growth.
In a nutshell, Xerox is the one in desperate need of saving.
But the deal or at least a collaboration might yet prove favourable to both companies given the digital realities of the present times which has seen hardware companies struggle globally. HP itself has seen its share value drop by 1.5%.
However, a hostile take over of a company in the same line of business and clearly doing way better might not be the way forward.
Since it still maintains that the acquisition is the best for both companies and since its withdrawal obviously isn’t a business-related one at least on paper, it will be interesting to see if Xerox resumes its bid after coronavirus blows over.
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