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HP bids to block Xerox takeover with huge shareholder windfall

(Image credit: Shutterstock / N.Z.Photography)

HP has announced an aggressive share buyback plan, in a bid to ward off a hostile takeover approach from rival printing company Xerox worth $35 billion.

The company will repurchase up to $16 billion worth of shares over three years, diverting all free cash flow to share buybacks unless it identifies opportunities with higher potential return.

The move would restore roughly half of HP’s market capitalisation to investors, significantly increasing the company’s debt ratio and making the Xerox bid effectively untenable in its current form.

Despite standing in the way of a takeover, HP has said it is willing to consider a deal on redefined terms. This could include an agreement that sees HP acquire Xerox instead.

“We are willing to engage them,” said Enrique Lores, HP President and CEO. “It is not about who buys what, it is really about creating value.”

Xerox HP takeover

After an initial bid was rejected by HP in early November, Xerox confirmed it would forge ahead by taking the offer (then worth $33.5bn) directly to its rival’s shareholders.

In an open letter to HP, Xerox CEO John Visentin said the company’s “refusal to engage in mutual due diligence with Xerox defies logic”.

“While you may not appreciate our ‘aggressive’ tactics, we will not apologise for them. We plan to engage directly with HP shareholders to solicit their support in urging the HP board to do the right thing and pursue this compelling opportunity,” he added.

Billionaire activist Carl Icahn, who holds 10.6 percent stake in Xerox and 4.24 percent stake in HP, has pushed for a merger of the two companies since discussions began.

Xerox took an improved offer to HP stakeholders earlier this month, valued at roughly $35 billion. However, the new offer raised eyebrows among investors as it would leave the combined organisation in significant debt, which would be further aggravated by HP’s share buyback.

“It’s abundantly clear the revised Xerox proposal meaningfully undervalues HP, creates significant risk and compromises the future of our company,” said Lores in a nine-page letter announcing the windfall.

Lores dismissed the notion the repurchase initiative was prompted by Xerox, insisting the company was waiting until it could publish its strong earnings before launching the buyback plan.

Via FT