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HP Rejects Xerox Offer as Too Low While Staying Open to Deal

Jim Silver and Scott Deveau

(Bloomberg) -- HP Inc.’s board unanimously rejected Xerox Holdings Corp.’s unsolicited takeover proposal, saying the $22-a-share offer is too low and citing concerns about the smaller rival’s prospects in the printing industry.

HP is “open to exploring” a merger but there are “fundamental questions that need to be addressed,” Chief Executive Officer Enrique Lores and Chairman Chip Bergh wrote in a letter to Xerox CEO John Visentin. They cited Xerox’s revenue decline since June 2018, “which raises significant questions for us regarding the trajectory of your business and future prospects.”

HP pressed for access to Xerox’s books as a step toward any potential combination, which would unite iconic brands and reshape the printing industry. Norwalk, Connecticut-based Xerox is one of the biggest sellers of photocopiers, while Palo Alto, California-based HP is one of the world’s largest printer makers. A representative for Xerox wasn’t immediately available for comment.

“With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction,” Lores and Bergh wrote. “We remain ready to engage with you to better understand your business and any value to be created from a combination,” they added.

HP officials believe they can move quickly on due diligence because the two companies have had on-and-off-again conversations over the years, and even asked for such a review toward a potential combination back in September, according to people familiar with the situation who asked not to be identified. HP officials are open to any form of transaction that would create the most value for shareholders and may consider buying Xerox, the people said.

HP’s statement included a Nov. 5 letter from Xerox outlining the offer of $17 a share in cash and 0.137 Xerox shares for each HP share, for a total transaction value of $33.5 billion. Xerox’s letter said the offer remained open until Nov. 13.

Since news of the talks broke on Nov. 5, HP’s shares have risen 9.7% to $20.18, giving it a market capitalization of $29.9 billion. Xerox has risen about 7.1% to $38.94, for a market cap of $8.42 billion.

A combination has had the support of investor Carl Icahn, who filings last week show had raised his stake in HP to 4.2% of shares outstanding in the third quarter. Icahn, in an interview last week with the Wall Street Journal, said he sees HP as undervalued and that a combination would benefit both companies through cost savings.

A representative for Icahn wasn’t immediately available for comment Sunday.

(Updates with shares in seventh paragraph. An earlier version was corrected to remove a reference to when HP’s board made decision)

To contact the reporters on this story: Jim Silver in New York at jsilver@bloomberg.net;Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Sebastian Tong at stong41@bloomberg.net, Matthew G. Miller, Kevin Miller

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