HP calls Xerox bid disastrous and irresponsible
The HP board says the Xerox deal could be “disastrous” and is asking its shareholders to give the Xerox bid short shrift to enable the management team to focus on dealing with the Covid-19 pandemic.
Not mincing its words, the company says the proposed deal is “A complex, large-scale, highly leveraged transaction”, and one which it says, “In the current economic environment could be disastrous for HP, its shareholders, and our entire ecosystem”. CEO Enrique Lores called the funding “irresponsible” and said if it went through, the deal would cause “financial distress” to HP.
Xerox itself has “paused” progress on the deal ostensibly to focus on the virus, although it hasn't escaped anyone's attention that the plunging share price of both companies has dramatically altered the metrics of the merger.
HP is telling its shareholders that it is not closed to a deal, but says right now is not the time. CEO Enrique Lores says, “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 is abundantly clear that now is not that time.”
The HP board is also warning its shareholders about the highly leveraged nature of the proposed deal. Lores said, “We have consistently expressed deep concerns about the irresponsible capital structure that is reflected in Xerox’s proposal. Their proposed structure would saddle HP with a level of debt that it could not support, potentially leaving the company without the cash needed to effectively run the business. We believe this would put the company at risk of being in financial distress immediately upon consummation of Xerox’s proposed transaction.
“On top of this, the highly leveraged capital structure Xerox wants to implement could threaten the stability of the entire HP ecosystem and the livelihoods of our employees, customers and partners.”