Xerox nails down $24bn funding to back proposed HP acquisition

Xerox CEO John Visentin brandishes the financing necessary to back Xerox's proposed takeover of HP Inc

Copier and printer maker Xerox today claimed to have obtained $24 billion in binding financial commitments to back its proposed $33.5 billion cash and stock offer for PC and printer maker HP Inc.

The news was conveyed in a letter to HP's board. Xerox CEO John Visentin claims that the funding should answer questions over his company's ability to raise the funds necessary to back the proposed deal.

You and your advisors have been questioning our ability to raise the capital necessary to finance our proposal

In the open letter published today, Visentin wrote that it had become "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... from Citi, Mizuho and Bank of America."

In order to remove any doubt, we have obtained binding financing commitments

Visentin also claimed that his company has been in talks with a number of HP shareholders who, he says, are keen on a combination of the two companies.

Such a deal, he continued, would "deliver substantial synergies and meaningfully enhanced cash flow that could, in turn, enable increased investments in innovation and greater returns to shareholders".

Visentin added that the financing was not subject to any due diligence condition.

One of the HP shareholders backing the deal includes activist investor Carl Icahn.

In the face of scepticism from HP Inc's board, Xerox has threatened to escalate its takeover bid and go hostile - taking its offer direct to HP shareholders.

That, though, may also require the company to increase its bid, which already entails substantial dilution for Xerox shareholders. They would own around half of the merged entity, with HP Inc shareholders owning the other half, under the current proposal.

HP Inc has also indicated that it could turn the tables and launch its own takeover bid for Xerox.

A takeover of HP by Xerox would be something of a mis-match in terms of the two companies' relative sizes: Xerox posted revenues of $9.83 billion and generated net income of $374 million in the financial year to the end of 2018; HP Inc, meanwhile, achieved net revenues of $58.8 billion in the year to the end of October 2019, and net earnings of $3.15 billion.

Visentin claims that a merged HP-Xerox would be able to wring cost savings out of their supply chain amounting to more than $2 billion, particularly on the printer and imaging side. According to Visentin, HP's board had agreed during exploratory talks prior to going public that such savings might be possible from a merger of the two companies.

HP Inc, meanwhile, claims that Xerox's offer takes advantage of a relatively low value for HP, following a restructuring during 2019 in response to disappointing printer and print-supply sales. Xerox's $22 per share offer mounts to small premium on HP's current $20.73 stock price - but a big discount on its 2019 high of $23.58.