Xerox Takeover Offer For HP Could Take A Hit From Stock Price Collapse

The offer is based on a Xerox stock price of $37.68, but Xerox shares are currently trading $10 lower.

Xerox's hostile takeover bid for rival HP Inc. could hit a new snag if Xerox's stock price remains significantly down in the wake of the massive market drop of recent weeks, based an a CRN analysis of the offer.

On Tuesday, Xerox reaffirmed that it is offering $24 per share in its tender offer for HP, through a combination of $18.40 per share in cash along with Xerox stock. However, as Xerox itself noted in its news release Tuesday, the stock portion of the offer is based on Xerox's closing share price on Feb. 6 of $37.68.

[Related: Xerox Reaffirms $24-Per-Share Offer For HP Inc., Calls For Special Shareholder Meeting]

Xerox's closing price on Monday was $27.50--following the worst single-day stock market decline since the financial crisis. (On Tuesday, Xerox shares were flat as of this writing.)

The stock portion of the deal includes 0.149 of a Xerox share for every HP share. That equals a value of $5.60 per share, based on the $37.68 share price on Feb. 6. Adding that to $18.40 per share in cash is how Xerox gets to the offer price of $24 per share for HP.

But Xerox's Monday closing price of $27.50 only equals a value of $4.10 per share. Thus, Xerox's actual offer for HP based on its latest closing price is actually equal to $22.50 per share, not $24 per share.

CRN has reached out to Xerox and HP for comment.

If Xerox's share price does not recover, the company would appear to need to raise additional cash to reach the $24 per share number. The other option, additional stock, does not seem to be on the table, because Xerox does not want to provide HP shareholders with a majority stake in the combined company.

Last week, HP formally recommended that its shareholders ignore the $24-a-share tender offer from Xerox. HP's board of directors has repeatedly rejected the takeover deal since it was first proposed by Xerox in November.

HP's board believes that the Xerox offer "would compromise the future of HP and the value of shares of HP common stock by transferring value to Xerox shareholders and leaving HP shareholders with an investment in a combined company with an irresponsible capital structure, premised on unrealistic synergies estimates," the company said in a news release last week.

HP also supplied opinions from Goldman Sachs & Co. and Guggenheim Securities that say the Xerox tender offer is "inadequate from a financial point of view."

Despite being the far smaller of the two companies, Xerox has been 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.

On Tuesday, Xerox said it will ask its shareholders to approve a plan to use its stock as part of the purchase price of HP at a yet-to-be-determined meeting.

“Xerox expects to call a special meeting at which Xerox shareholders will consider proposals to amend the Xerox charter to increase the number of authorized shares of Xerox common stock and to approve, for purposes of New York Stock Exchange rules, the issuance of Xerox shares in connection with a combination with HP,” the company said in a statement.

Xerox also reaffirmed its $24-per-share offer for HP, comprising $18.40 per share in cash and 0.149 Xerox shares for each HP share. Xerox did mention the macro market conditions, noting that trading was halted Monday after the S&P 500 dipped 7 percent, triggering a so-called circuit breaker that put a 15-minute stop to the exchange.