Xerox has given up on its quixotic attempt to acquire HP, which had been going on since November, blaming the decision on COVID-19 coronavirus and the associated economic downturn.
Most recently, the Norwalk, Connecticut, company had offered up a competing slate of candidates for the HP board of directors that presumably would have been more amenable to a merger between the two companies.
“The current global health crisis and resulting macroeconomic and market turmoil caused by COVID-19 have created an environment that is not conducive to Xerox continuing to pursue an acquisition of HP Inc.,” Xerox said in a statement on March 31. “Accordingly, we are withdrawing our tender offer to acquire HP and will no longer seek to nominate our slate of highly qualified candidates to HP’s Board of Directors.”
Palo Alto, California-based HP, which had been pretty negative on the whole merger idea all along, had issued a statement on March 25 saying it couldn’t deal with it right now.
“It is important for shareholders to understand that, under these circumstances and consistent with our fiduciary duties, we believe that we should not divert valuable time, attention and resources to a dialogue with Xerox about its proposed transaction,” the company said. “Any complex, large-scale, highly leveraged transaction in the current economic environment could be disastrous for HP, its shareholders and our entire ecosystem. While we remain open-minded about M&A as a tool to add value for HP shareholders at the right time and on the right terms — it’s abundantly clear that now is not that time.”
HP also pointed out that there would be six to 12 months of significant uncertainty before knowing whether the conditions of the merger would be satisfied, and the transaction could be funded and closed.
After Xerox issued its statement, HP issued an additional one of its own.
“We remain firmly committed to driving value for HP shareholders,” the company said. “We have a healthy cash position and balance sheet that enable us to navigate unanticipated challenges such as the global pandemic now before us, while preserving strategic optionality for the future.”
The effect the merger might have had on HP’s Boise campus, set up in 1975 as one of Idaho’s earliest technology companies, was unknown, but part of the attraction of the merger was potential “synergies” — that is, layoffs — between the two companies.
Some analysts had believed that the merger was inevitable.
“The combination would help HP in foraying into the corporate copier business where Xerox shines,” noted Zacks Equity Research earlier this year. “It would help the PC maker to cater to all office equipment needs of an organization. Similarly, Xerox could penetrate in the home-printing business with HP’s expertise in making smaller printers and printing supplies. Notably, both firms have been witnessing declining sales in their respective spaces.”
Nonetheless, HP — several times larger than Xerox — was fairly consistent in indicating that it wasn’t interested in the Xerox offer, though occasionally the company’s board of directors indicated that they might be willing to at least talk about it.
After an amicable merger couldn’t be worked out, Xerox announced that it planned a hostile takeover of the company, sweetening its offer and presenting the alternative board of directors slate. In response, HP implemented a so-called “poison pill” to make it more difficult for anybody — including Xerox — to acquire the company. For example, if any single source acquired more than 20% of HP, the company would then have the right to issue more shares of stock, which would have the effect of diluting ownership and making HP more difficult to acquire. The effort, formally known as a “limited duration shareholder rights plan,” is scheduled to last for a year.
Activist investor Carl Icahn had reportedly been pushing for the merger. According to published sources, he holds a 4.2% stake in HP and a 10.9% stake in Xerox.