Xerox turns to HP shareholders with $33bn takeover proposal

Xerox said it would take its proposal for a $33bn takeover of HP directly to the personal computer maker’s shareholders, escalating hostilities between the two companies in the wake of HP’s rejection of the idea. 

Xerox made the declaration on Tuesday shortly before HP announced a bullish earnings projection for its next fiscal year.

The embattled PC and printer maker, which turned down a request to open its books to Xerox over the weekend, recorded revenue growth of only 0.3 per cent in the latest quarter, ending a fiscal year in which sales only advanced 0.5 per cent.

However, at $15.4bn, revenue was still ahead of expectations and represented growth of nearly 2 per cent on a constant currency basis.

Its shares rose more than 1 per cent to about $20.40 in after-hours trading, giving it a lift in its efforts to fend off Xerox’s unwanted $22-a-share bid. It has left the door open to turning the tables and acquiring Xerox, which is far smaller than HP, and said it wanted to conduct its own review of Xerox to see if a potential merger had any merit before giving its rival non-public information.

Xerox last week threatened to turn its bid into a hostile one if HP declined to enter into merger talks. Xerox had pushed for both groups to begin evaluating one another in an attempt to move closer to a deal. 

“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,” John Visentin, Xerox chief executive, wrote in a letter on Tuesday to Enrique Lores and Chip Bergh, HP’s chief executive and chairman, respectively.

Carl Icahn, the activist investor who owns stakes in both companies and ranks as one of HP’s largest shareholders, has lobbied in favour of the tie-up. 

HP has been sceptical of Xerox’s ability to fund the deal. Xerox has less than a third of HP’s equity value. But Xerox is flush with cash after it agreed to sell its 25 per cent stake in a venture with Fujifilm to the Japanese group for $2.3bn. 

In the letter on Tuesday, Mr Visentin sought to dispel concerns that Xerox would be unable to finance the transaction, saying the offer “does not contain a financing contingency”, and “is neither ‘highly conditional’ nor ‘uncertain’ as you claim”. 

HP declined to comment on the letter and on an earnings call with analysts Mr Lores said he would not answer any questions about Xerox.

The company said it expected to see pro forma earnings per share of $2.24-$2.32 in the fiscal year that began this month. That is above the $2.23 analysts had been expecting from HP.

In a letter on Sunday to Xerox’s Mr Visentin, Mr Lores and Mr Bergh wrote that the “fundamental issues have not gone away, and your now-public urgency to accelerate toward a deal . . . only heightens our concern about your business and prospects”. 

Xerox shares fell 1 per cent on Tuesday to $38.30, giving the company a market valuation of roughly $8bn.