Xerox bids to buy HP for US$33bn

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Fresh from its conscious uncoupling with Fujifilm, imaging giant Xerox is making an audacious bid to buy HP, slapping a US$33bn cash and shares bid on the table in New York.

If successful the deal will bring the HP Indigo brand into the Xerox fold alongside the iGen and Iridesse, and will give Xerox entry into the burgeoning digital packaging and labels sector, providing growth opportunities that neither the desktop nor commercial digital printer markets provide.

HP is more than triple the size of Xerox, with a market capitalisation of US$28bn compared to US$8.2bn of its suitor. Xerox sales last year were US$9.8bn, compared to US$58.5bn of HP. Financial analysts, though, say the combined business will be able to shed US$2bn a year in back end costs.

The Xerox high end print systems sector, which includes Iridesse, iGen, and its production print presses, brought in sales of $424m last year. The HP Graphic Solutions business – which includes HP Indigo, Pagewide, Scitex, DesignJet and Latex print systems – is part of the US$4.7bn Commercial Hardware division.

A combined company would be a dominant player in digital label presses, digital packaging presses, and digital commercial presses. Both are big in toner technology, with HP Indigo using its proprietary liquid toner, and Xerox the dry toner it invented. Xerox is also developing inkjet systems: it bought the French Impika business – which is now the Xerox 1400 – after the last drupa, where it also showed Brenva sheetfed and Trivor webfed inkjet, although neither has been made available in ANZ. At drupa next year it is expected to show its latest developments, which will include the Baltoro HF, a rival to the Canon i300.

Driving force: Billionaire Xerox investor Carl Icahn
Driving force: Billionaire Xerox investor Carl Icahn

Major Xerox shareholders Carl Icahn and Darwin Deason are behind the plan. Current Xerox CEO John Vinsentin comes from a private equity background, and is in place thanks to Icahn and Deason. They are the duo who fought against the Xerox board’s move to sell to Fujifilm, resulting in CEO Jeff Jacobson and other directors losing their jobs, with Fujifilm taking legal action over the failed $6bn deal.

Just last week though Xerox sold its 25 per cent stake in the Fuji Xerox business to joint venture partner Fujifilm, and in exchange Fujifilm dropped its US$1bn lawsuit over the failed merger deal.

Former CEO Jeff Jacobson was installed at the head of EFI by the equity fund which bought it for US$1.7bn in a leveraged buyout.

If shareholders do back the Xerox HP deal it will still need to get past the US anti-trust board, which may take some doing.

Under the proposed deal HP would end up with 48 per cent of the new business, with shareholders receiving a 21 per cent premium on the current value of their stock, although it would still be below the $24 a share that HP was trading at back in February.

The proposed deal would also saddle the new business with a massive $25bn debt, or five times the combined cashflows.

Response from HP to the bid has so far been polite but cool. The US financial press is in overdrive with analysis of Icahn’s motives and the way the whole situation may play out.

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