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Xerox and HP possible merger update

  • Bloomberg News is reporting that Xerox is prepared to offer HP almost a month for the companies to examine each other’s books as it seeks to win over the computer and printer maker for a takeover offer
  • HP had offered Xerox a non-disclosure agreement in September, typically a precondition of due diligence, which had been refused
  • Xerox would likely need to take on at least $20 billion of debt to close the deal.
  • “While there might be some alignment in terms of print technology, there is a very significant difference in approach when it comes to the channel and front line strategic sales,” said one executive at a partner of HP
    • “The Xerox approach is traditionally direct, or to use an agency model, and this agency type model would likely not be adopted by the very strong and mature IT channel that HP is partnered into, and that has other options than HP on the end user computing front.”
    • “deal has yet to be reached due to potentially intractable disagreements about which should be the buyer and which the seller”
    • Further friction exists around which “management team should run the pro forma company, and which has a healthier underlying business”
  • In CRN magazine, Harry Zarek, CEO of Compugen, stated; “This proposed move by Xerox has only negative outcomes for HP’s channel partners”
    • “Xerox has historically been a direct sales organization…”
    • “They have a large direct sales organization focused on enterprise accounts and still deals with them directly and only selectively permits channel companies to participate.
    • “Contrast that with HP as a mature, channel-focused business”
    • “There is a big cultural mismatch around Xerox being able to understand how today’s IT channel model works.”
    • lead to “turmoil and dysfunction” in the sales trenches
  • Bernstein analyst Toni Sacconaghi, Jr. voiced skepticism about Xerox’s proposed acquisition
    • “The traditional printing and copying business is slowly collapsing”
    • “Xerox buying HPQ: Brilliance? A Dare? ‘Two Garbage Trucks Colliding?’”
  • HP’s board of directors unanimously rejected Xerox’s takeover bid of $22/share, reports
    • In their letter to Xerox CEO John Visentin, the board raises concern of outsized debt for merger transaction impacting the combined company’s stock.
    • “We note the decline of Xerox’s revenue from $10.2 billion to $9.2 billion…which raises significant questions for us regarding the trajectory of your business and future prospects,” the letter said.
    • Activist investor Carl Icahn, who owns 10.6% stake in Xerox had recently bought HP stock worth $1.2B and believed the combination of both companies would bring synergies.
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