Xerox Makes Takeover Offer for HP

Xerox Makes Takeover Offer for HP
By: WNG NYT Posted On: November 07, 2019 View: 33

Xerox Makes Takeover Offer for HP

Xerox became synonymous with photocopying and printing. HP’s business today is built, in large part, on its printers. Now Xerox wants to combine the two companies.

On Wednesday night, HP announced that the previous day it had received a takeover offer from Xerox, after conversations “from time to time about a potential business combination.”

“We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline and an eye towards what is in the best interest of all our shareholders,” the statement said.

A merger would combine two once-formidable companies that have faced business difficulties in recent years as demand for printed documents and ink has waned.

“Our industry is long overdue for consolidation, and those who move first will have a distinct advantage,” a Xerox spokeswoman, Caroline Gransee-Linsey, said in a statement. “We look forward to expeditiously moving this process forward and creating additional value for shareholders.”

The Wall Street Journal had previously reported that Xerox was considering a cash-and-stock offer for HP, which is also one of the world’s largest makers of personal computers. HP has a market value of $27 billion, more than three times that of Xerox. CNBC reported on Thursday that Xerox had offered HP $22 a share in the takeover bid.

The strategic rationale for a deal is largely to cut costs for two companies struggling to navigate the accelerating erosion of the traditional printing business. Analysts estimate that the savings from a merger could be $1.5 billion a year or more.

Both HP and Xerox have announced streamlining measures in recent months. Xerox said it planned to cut costs by more than $640 million. And HP said in October that it would trim as much as 16 percent of its work force as part of a broader restructuring plan.

Over the years, HP’s business model for its desktop consumer and corporate printing business has been to sell printers at no profit or a loss, but make money on selling a steady stream of replacement cartridges, called aftermarket supplies.

But a number of forces are undermining that model: The popularity of smartphones and tablet computers that allow electronic documents to be easily transported. The rise of sharing services that people use to distribute documents in the cloud. The growing awareness of the environmental effects of profligate printing.

At the same time, companies that collect, clean and rebuild print cartridges have made steady inroads. And the rise in recent years of Chinese cartridge-clone makers in particular has hurt the sales and profits of both HP and Xerox.

“You have people printing less, and the companies cannot profit from the aftermarket supplies as they once did,” said Toni Sacconaghi, an analyst at Bernstein Research.

HP has also gone through a leadership shake-up over the last few months. In August, the company’s chief executive, Dion Weisler, stepped down, citing a “family health matter.” He was replaced by Enrique Lores, a longtime executive who started at the company as an engineering intern.

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