HP Partners: Pandemic Would've Been A 'Terrible Time' For Xerox Takeover

As HP terminates its shareholder rights plan, CEO Enrique Lores says the Xerox bid ‘makes even less sense now’ amid the COVID-19 crisis.

Three months after the dissolution of Xerox's hostile takeover bid for HP Inc., partners of HP are expressing relief that there are no indications so far that the bid will be revived.

Last week, Palo Alto, Calif.-based HP terminated its shareholder rights plan--meant to help fend off the Xerox takeover--well ahead of schedule.

[Related: HP Partners Applaud The End Of Xerox Takeover 'Distraction']

In an interview with CRN this week, HP CEO Enrique Lores said that while his company's leadership felt the Xerox deal "didn't make sense before," it's clear that it "makes even less sense now" for a number of reasons related to the COVID-19 pandemic.

"I would never say never, because things can change. But clearly, when the [Xerox] deal was put on the table, we said there were several things that were a big problem," Lores said. "One was the exchange rate between the value of the two companies. This has dramatically changed. When you look at our stock price, it is basically the same that it was in November, within that $16-$17 range. Xerox was $35, and now it's $15-$16 per share."

Availability of credit to finance major acquisitions such as the proposed HP takeover "has also changed dramatically," Lores said.

"And third, and probably the more important--the proposal they were making was creating a company with higher leverage, between four and five times debt to EBITDA--which in a situation like this is incredibly risky," Lores said. "So, the same reasons we shared a few months ago that supported the fact that it didn't make sense, are even more relevant now. So, it's hard to predict what others will do--but clearly if it didn't make sense before, it makes even less sense now."

Xerox declined to comment when reached by CRN.

HP's board of directors last week voted to disband the shareholder rights plan ahead of the original expiration date of Feb. 20, 2021. Lores said the move was a "confirmation of what we said when we put it in place."

"We said it was a temporary action that we were taking because of the situation [with Xerox's] hostile takeover," he said. "We said it was a reaction to that takeover, and that this was not something we were planning to maintain in the long term ... When we needed it, we put it in place. And now that we don't, we removed it."

Xerox had ended its hostile bid to acquire HP on March 31. The copier giant withdrew its tender offer for HP shares and said it would not pursue the nomination of its candidates to HP's board of directors. Xerox's decision resulted from the COVID-19 pandemic and the "resulting macroeconomic and market turmoil," the company said.

The move came after Xerox's share price plummeted amid the global spread of the coronavirus. Xerox’s proposed $34.9 billion cash-and-stock deal for HP was pegged to a Xerox stock price of $37.68 a share from Feb. 6. Xerox's shares closed at $18.94 on March 31--leaving a massive gap in the company's proposed acquisition deal for HP.

Major partners of HP said they are glad to see that HP has enough confidence to eliminate the shareholder rights plan.

"I just couldn't understand what the long-term strategy was, and didn't see the vision aligning appropriately" with Xerox's bid for HP, said Juan Fernandez, vice president of managed IT services at Oklahoma City-based ImageNet Consulting. "I'm glad it didn't work out, and really glad HP is still leading the charge on its PC products. They have had the management and the experience to carry them through this pandemic, and had there been different management in place, it might have been a really bad situation for HP and a bad situation for partners."

Harry Zarek, president and CEO of Richmond Hill, Ontario-based Compugen, agreed that the pandemic would've been an especially bad time for the acquisition. In particular, a takeover by a company like Xerox -- focused so heavily on office copiers and printers -- would have been badly suited for a time period where work has shifted to the home, he said.

"The fact is, the print business is one that has dropped off substantially, because printing generally happens in the office and people don’t have these products at home. So this would have been a terrible time to try to fight a hostile takeover," Zarek said.