Xerox's Chances Of Acquiring HP 'Just Took A Dip': Analyst

HP’s massive share buyback and strong quarterly results suggest the company has ‘a way forward’ without Xerox, a J.P. Morgan analyst says.

HP Inc.'s strong quarter and announcement of a "value creation plan" has eroded the chances that the hostile takeover bid from Xerox will succeed, according to a J.P. Morgan analyst.

On Monday, HP handily beat analyst expectations for its fiscal first quarter and announced a plan to return $16 billion to shareholders in the next three years. The PC and printer maker also increased its outlook for its fiscal 2020 results.

[Related: 10 Big Things HP Just Said About Xerox]

The solid Q1 results and capital return plan "present a way forward" for HP that is "independent of Xerox," J.P. Morgan analyst Paul Coster wrote in a note to investors.

"In our view the likelihood of Xerox acquiring HPQ or of Xerox being acquired by HPQ just took a dip," Coster wrote. (HP Inc.’s stock ticker symbol is HPQ.)

Xerox did not immediately respond to a request for comment.

Along with committing to a capital return plan that includes an $8 billion share buyback in the year following HP's 2020 annual meeting, HP executives on Monday laid out their fullest case yet for why they believe the Xerox proposal is a bad deal for everyone other than Xerox.

The moves follow HP's adoption last week of a shareholder rights plan that aims to stymie the takeover.

The Xerox bid “compromises the future of HP and the value of HP's shares,” HP CEO Enrique Lores said during the company's quarterly call with analysts Monday. “Their proposal has a number of fundamental problems.”

HP's board of directors has repeatedly rejected the takeover deal since it was first proposed by Xerox in November.

But Xerox has not backed down, and has promised to launch a tender offer starting "on or around" March 2, which will ask all HP shareholders to sell their shares to Xerox. The company also recently upped its offer for HP to $24 a share--or $34.9 billion in total--from $22 a share initially.

With HP Inc. and Xerox, "we are looking at two very different companies," Lores said on Monday. "HP is a global leader in both personal systems and print. Xerox has no presence in personal systems. Xerox's position in print is not nearly as robust as HP. We are a technology leader, and with Xerox's exit from the Fuji-Xerox joint venture, Xerox has no long-term technology or supply roadmap."

Meanwhile, HP "has grown by $10.5 billion over the last few years,” he said. "This revenue growth is meaningfully more than Xerox's total company revenue."

Ultimately, "HP does not need a Xerox combination to create significant value for shareholders," Lores said.

On Monday, HP executives also disclosed that they are reaching out to Xerox in an effort to resume merger discussions, Coster noted in his report to investors. However, "we sense a high bar and an eagerness to quickly pivot to this go-it-alone strategy," Coster wrote.