The ongoing war of words between Hewlett Packard and Xerox has not slowed since HP published its first public missive, rejecting Xerox’s “unsolicited” US$22 a share offer on 17 November.
Since then the boards, CEOs, and investors entangled in both companies have written open letters in a public courtship -- or public spurning – of the rival company.
While none of this is new for followers of Carl Icahn – the corporate raider who owns massive stakes in both companies and has posted his open letters online since 2013 -- the exchanges have shed light on the sticking points between the two sides with each of HP’s refusals met by renewed entreaties from Xerox. The copier remains unconvinced that HP is rejecting them, just as HP is steadfast in repeating that it is not interested.
Is it a star-crossed pairing, or the beginning of a beautiful relationship? Here are all the letters the companies have shared.
To: HP Board Chairman Chip Bergh
From: Xerox CEO John Visentin (pictured)
Subject: The ongoing merger talks
Key paragraph: The substantial synergies generated from a transaction are only the beginning of the unique value creation opportunity you and we identified together – enhanced capital allocation, revenue growth, diversification, balance sheet strength and best in class human capital all result from combining our two industry leading companies. Consequently, our Board of Directors fully supports the transaction outlined below. The nature of the opportunity and the moment, combined with the overwhelming support we believe your and our shareholders, employees and other stakeholders will extend to our coming together as one company, furthers our resolve to pursue a potential transaction with you.
Take away: This was marked “strictly confidential” by Xerox and was not a public letter until HP released it with their response,12 days after it was sent. The letter contains the bulk of Xerox’s offer to combine with HP.
From: HP CEO Enrique Lores, Bergh (pictured)
Subject: Let’s talk
Key graph: We recognize the potential benefits of consolidation, and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox. 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. We note the decline of Xerox’s revenue from US$10.2 billion to US$9.2 billion (on a trailing 12-month basis) since June 2018, which raises significant questions for us regarding the trajectory of your business and future prospects.
Take away: HP calls Xerox’s offer “unsolicited” and it is concerned that the company is losing ground. HP wants to see more of Xerox’s business before agreeing to a deal.
To: Lores, Bergh
Subject: A deadline and a threat (CRN USA)
Key graph: Accordingly, unless you and we agree on mutual confirmatory due diligence to support a friendly combination by 5:00 p.m. US Eastern Standard Time on 25 November 2019, Xerox will take its compelling case to create superior value for our respective shareholders directly to your shareholders. The overwhelming support our offer will receive from HP shareholders should resolve any further doubts you have regarding the wisdom of swiftly moving forward to complete the transaction.
Take away: Xerox flexes its Icahn muscles and threatens HP with a proxy fight if it resists their “friendly” offer.
From: Lores, Bergh
Key lines: (W)e reject Xerox’s proposal as it significantly undervalues HP. Additionally, it is highly conditional and uncertain. In particular, there continues to be uncertainty regarding Xerox’s ability to raise the cash portion of the proposed consideration and concerns regarding the prudence of the resulting outsized debt burden on the value of the combined company’s stock even if the financing were obtained. Consequently, your proposal does not constitute a basis for due diligence or negotiation … We will not let aggressive tactics or hostile gestures distract us from our responsibility to pursue the most value-creating path.
Take away: HP took four pages for a point-by-point rebuke of Xerox offer outlining the ways it could not work and was not based on verifiable facts.
To: HP Shareholders
From: Carl Icahn (pictured)
Subject: C’mon. Let’s make a deal (CRN USA)
Key lines: I cannot believe that the recalcitrance of HP’s board is driven by any real confidence in its standalone restructuring plan, which the market, shareholders and analysts met with extreme indifference and which seems to amount to little more than rearranging the deck chairs on the Titanic. The road to the graveyard on Wall Street is littered with the bones of companies, such as Eastman Kodak, which wasted a great deal of valuable time by coming up with one ill-fated plan after another and also failed to act decisively when transformative opportunities presented themselves. It is absurd for the HP board and management team, with such a history of underperformance and missteps, to claim to have had a sudden epiphany and now expect shareholders to trust them to execute a standalone restructuring plan rather than to even explore an opportunity to enter into a combination that could bring about a much needed $2+ billion of cost synergies and possibly save the company.
Take away: While many speculated that Icahn was directing efforts behind the scenes, this letter confirmed that not only did he have a large position in both companies (10.85% in Xerox and 4.24% in HP) but he was advocating bringing the two together based on his history of crafting winning deals.
To: Lores, Burg
Subject: We have the money
Key line: (I)t also became clear from our dialogue with your shareholders that you and your advisors have been questioning our ability to raise the capital necessary to finance our proposal. We have always maintained that our proposal is not subject to a financing contingency, but in order to remove any doubt, we have obtained binding financing commitments (that are not subject to any due diligence condition) from Citi, Mizuho and Bank of America. My offer stands to meet with you in person, with or without your advisors, to begin negotiating this transaction.
Take away: This could be seen as a response to the line in HP’s Nov. 24 letter that read “there continues to be uncertainty regarding Xerox’s ability to raise the cash portion of the proposed consideration” but the funding commitments did not address HP’s second concern in that same sentence which was “the resulting outsized debt burden on the value of the combined company’s stock even if the financing were obtained.”
From: Lores, Bergh
Subject: Still no
Key lines: We reiterate that the HP Board of Directors’ focus is on driving sustainable long-term value for HP shareholders. Your letter dated January 6, 2020 regarding financing does not address the key issue – that Xerox’s proposal significantly undervalues HP – and is not a basis for discussion. The HP Board of Directors remains committed to advancing the best interests of all HP shareholders and to pursuing the most value-creating opportunities.
Take away: In a possible combination with Xerox, HP sees no path forward.