Xerox secures US$24bn war chest for HP bid

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Xerox Corp is going flat out with its hostile takeover bid of HP, securing US$24bn in funding from three banks, and telling the HP board it has the cash to back its intentions.

The company says the US$24bn comes in the form of binding financing commitments from Citi, Mizuho and Bank of America, and is not subject to any due diligence. The HP board, which is resisting the takeover bid, had publicly questioned the ability of Xerox to come up with the cash.

The directors of the two businesses have been in a war of words with each other for the past month, as they battle for the support of the HP shareholders who will decide the future of the business.

Xerox CEO John Visentin spent the Christmas period meeting with major HP shareholders to walk them through the Xerox case for its proposed acquisition of HP.

Xerox says the increased cash flow generated by a takeover “would help pare debt, increase capital returns to shareholders, and drive greater investment in innovation that would put these storied brands at the forefront for decades to come.”

However, the HP Board says the offer is too low and would saddle the business with a gigantic $25bn debt, and that HP is well positioned for growth on its own.

The cash and share deal offers $22 a share, which is 10 per cent less than HP's year high of $24. Xerox, though, says that $17 cash, plus a stake in the 48 per cent that HP will own of the new company, means a $14 per share benefit to HP shareholders.

The deal is being driven by billionaire 83-year-old investor Carl Icahn, who is the biggest shareholder in Xerox with 11 per cent of its stock, and has recently bought 63 million HP shares, giving him 4.24 per cent of the company. Icahn is currently being sued by a US pension fund in regard to his HP holdings.

It was Icahn and fellow Xerox major shareholder Darwin Deason who blocked the proposed Fujifilm takeover of Xerox last year which saw CEO Jeff Jacobson lose his job, with Icahn and Deason then installing Visentin. Jacobson was then brought in as CEO of EFI by Siris p/e, which bought the business in a US$1.7bn leveraged buyout.

HP is seven times the size of Xerox, with sales last year of US$58.8bn, while Xerox achieved sales of US$9.8bn. The HP Graphic Solutions business, which develops well known print industry solutions including Indigo, PageWide, Latex, Scitex, and DesignJet, represents about eight per cent of the HP business.

The Xerox production print business, which includes Iridesse, iGen, and Versant, is about four per cent of the overall Xerox business.

Below is the letter sent by Visentin to the HP CEO and chair:

Dear Chip and Enrique,

Over the last several weeks, we have engaged in constructive dialogue with many of your largest shareholders regarding the strategic benefits of our proposal to acquire HP. It remains clear to all of us that bringing our companies together would deliver substantial synergies and meaningfully enhanced cash flow that could, in turn, enable increased investments in innovation and greater returns to shareholders.

But it also became clear from our dialogue with your shareholders that you and your advisors have been questioning our ability to raise the capital necessary to finance our proposal. We have always maintained that our proposal is not subject to a financing contingency, but in order to remove any doubt, we have obtained binding financing commitments (that are not subject to any due diligence condition) from Citi, Mizuho and Bank of America.

My offer stands to meet with you in person, with or without your advisors, to begin negotiating this transaction.


John Visentin

Vice Chairman and CEO
Xerox Holdings Corporation

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