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HP rejects Xerox takeover bid, yet again

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Posted at 4:50 AM, Nov 25, 2019
and last updated 2019-11-25 04:50:57-05

HP is making itself clear to Xerox: Seriously, we don’t need you.

PALO ALTO, CALIFORNIA – OCTOBER 04: The Hewlett Packard (HP) logo is displayed in front of the office complex on October 04, 2019 in Palo Alto, California. HP announced plans to cut 7,000 to 9,000 jobs in an effort to save about $1 billion by the end of fiscal 2022. (Photo by Justin Sullivan/Getty Images)

HP’s board on Sunday once again rejected a takeover bid from Xerox, saying in a letter to Xerox CEO John Visentin that his company’s proposal “significantly undervalues HP.”

“We believe it is important to emphasize that we are not dependent on a Xerox combination,” the HP board wrote in its letter. “It is clear in your aggressive words and actions that Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information.”

The letter was sent in response to Visentin’s latest attempt to push HP toward accepting the bid, which values HP at $33.5 billion, or $22 per share — $17 in cash and 0.137 in Xerox shares for each HP share. That’s more than HP’s market cap of nearly $30 billion, which already makes the company more than three times the size of Xerox.

Xerox was flat in premarket trading Monday, while HP’s stock was up nearly 2%.

HP, formerly known as Hewlett-Packard, first rejected the offer earlier this month. But last Thursday, Visentin threatened to approach HP’s shareholders directly if the two sides could not agree on a way to “support a friendly combination” by the end of the business day in New York on Monday.

The HP board dismissed that “hostile approach” in its letter Sunday, and called out what it identified as “significant concerns” about Xerox’s business. It pointed out that Xerox’s revenue has fallen nearly 10% in the past year.

HP’s board also said it was concerned about Xerox’s decision to sell its stake in a joint venture with Fujifilm, adding that the exit leaves a “sizeable strategic hole” in Xerox’s business.

“We have concerns as to the state of Xerox’s technology resources, research and development pipeline, future product programs, and supply continuity and capability,” the directors wrote, adding that Xerox would also have to get access to “the fastest growing Asia Pacific region.”

Xerox did not immediately respond to a request for comment from CNN Business. In his letter last Thursday, Visentin said his company’s offer was “neither ‘highly conditional’ nor ‘uncertain,'” adding that the deal would be a “compelling opportunity” for the shareholders of both companies.

A marriage between the companies could make sense. Both Xerox and HP spun off their big money-making ventures in recent years, leaving behind aging printing businesses that remain profitable. But those earnings are dwindling every year.

HP had surprised investors by growing faster than many had believed possible after its 2015 split with HP Enterprise, but it has struggled in recent quarters.

Although HP still has a sizable PC business, fewer customers are buying ink from HP. Ink sales had long been HP’s profit generator: HP would take losses on its printer sales, generating the bulk of its income from ink. But smartphones make printing less crucial, and many customers who do print are able to find cheaper ink suppliers.

The company announced last month that it would cut between 7,000 and 9,000 jobs by 2022. At the time, Enrique Lores, HP’s new CEO, called the move a “bold and decisive action” to help the company in its next chapter.

Xerox, like HP, relies on a dying business for the bulk of its sales and profit. It sells and services copy machines and printers, primarily for corporations