Xerox has entered into a $24 billion financing commitment with three banks for a new takeover bid for PC and printer manufacturer HP.
Xerox has not yet abandoned its efforts to acquire HP. The company is convinced that a merger would be beneficial to both organisations to revitalise their business. However, HP was quick to reject an initial takeover bid in November last year.
Xerox offered $33.5 billion, but according to HP’s board of directors, that was a significant undervaluation. HP has a market capitalisation of nearly $30 billion and is worth more than three times more than Xerox. Moreover, in 2018, it had a turnover of more than $58 billion, compared to the $10 billion of Xerox.
Despite persuasive efforts by Xerox CEO John Visentin, HP’s board of directors remained firm in their conviction. Xerox then changed its strategy and decided to turn directly to HP’s shareholders in the hope of making the acquisition.
HP doubtful about financing
HP then argued to its shareholders that Xerox’s ability to raise the necessary capital is questionable. With the $24 billion in funding, Xerox now hopes to refute that argument.
“We have always maintained that our proposal is not subject to emergency funding, but for the avoidance of doubt, we have obtained binding funding agreements (which are not subject to a due diligence condition) from Citi, Mizuho and Bank of America,” Visentin states in an open letter to the board of HP.
Xerox expects to achieve a sales growth of $1 to $1.5 billion in three years, in the event of the acquisition of HP. In addition, it would generate annual savings of $2 billion through consolidation of operations and technologies.