HP Announces $16B Shareholder Return Program As Xerox Pursues Takeover

The company is answering Xerox’s hostile bid with new criticisms of the deal and measures including an expanded share buyback program.

HP Inc. on Monday announced it will return $16 billion in capital to shareholders over its next three fiscal years as the company seeks to shore up shareholder loyalty during Xerox's hostile takeover bid.

The capital return plan will include an $8 billion share buyback that is targeted for the 12 months following HP's 2020 annual meeting.

[Related: 5 Things To Know About HP's Shareholder Rights Plan]

"This plan is supported by margin expansion across our businesses," HP CEO Enrique Lores said Monday during a call with reporters and analysts--including in both its PC and print businesses. The $16 billion will be returned during HP’s fiscal 2020-2022, the company said.

The moves come as Xerox has promised to launch a tender offer, starting "on or around" March 2, that will ask all HP shareholders to sell their shares to Xerox.

HP's board of directors has repeatedly rejected the takeover deal since it was first proposed by Xerox in November. Xerox recently upped its offer for HP to $24 a share--or $34.9 billion in total--from $22 a share initially.

HP indicated that additional share repurchases could be ahead, beyond the initial $8 billion, as the company is expanding its total share repurchase authorization to $15 billion from $5 billion previously.

The PC and printer giant will also boost its long-term capital return target to 100 percent of free cash flow, "unless higher return opportunities emerge," the company said.

Meanwhile, HP on Monday made its case that shareholders can expect expanded profitability from the company in coming years. By HP’s fiscal 2022, the company expects to achieve non-GAAP diluted net earnings of between $3.25 and $3.65 per share. That's more than $1 per share higher than the current analyst consensus estimate, HP CFO Steve Fieler said during the call with reporters and analysts.

HP executives are also responding forcefully to Xerox's latest move promising to launch a tender offer imminently.

In a news release, Lores said that "it's abundantly clear the revised Xerox proposal meaningfully undervalues HP, creates significant risk and compromises the future of our company."

The company laid out three major criticism's of Xerox's latest offer in its news release, saying that the proposal:

- Exchanges HP stock for cash and Xerox stock at a fundamentally flawed value exchange that does not compensate HP shareholders for the value of HP executing on its strategic plan and transfers value from HP shareholders to Xerox shareholders;

- Uses HP’s balance sheet as transaction consideration and creates an irresponsible capital structure that would jeopardize the future value of the combined company and constrain its ability to invest in growth and innovation; and

- Overstates the potential synergies by including HP’s existing plans for independent cost reductions and productivity gains.

However, HP said it continues to leave open the possibility of a merger with Xerox under different terms, a possibility that has not been mentioned by the company for several months. HP is "reaching out to Xerox to explore if there is a combination that creates value for HP shareholders that is additive to HP’s strategic and financial plan," the company said in its news release.

CRN is reaching out to Xerox for comment.

Despite being the far smaller of the two companies, Xerox is seeking to absorb HP in order to bring together the largest players in the copier and printer markets, at a time when the industry is waning.

Additionally on Monday, HP reported its results from its first quarter of fiscal 2020, ended Jan. 31. The company reported earnings of 65 cents per share, beating the analyst consensus estimate of 54 cents per share, while HP's net revenue of $14.62 billion was in line with the consensus estimate of $14.63 billion.

HP's stock price rose 5.2 percent, to $23.25 a share, in after-hours trading following the announcements Monday.