Xerox Is Ratcheting Up the Pressure in Its Battle to Buy HP. What HP Might Do Next. -- Barrons.com
By Eric J. Savitz
Xerox (XRX) is raising the stakes in its bid to acquire HP Inc. (ticker: HPQ).
According to The Wall Street Journal, Xerox is planning to nominate as many as 11 directors to HP's board ahead of a Friday deadline to propose nominees. Xerox has offered to acquire HP for $22 a share, including $17 in cash and the rest in Xerox stock; HP has repeatedly rejected the offer as too low. Xerox earlier in January said it has lined up financing for the cash portion of the bid.
The Journal story, which is attributed to "people familiar with the matter," also said it's possible Xerox could choose to make a tender offer for HP shares. Xerox continues to seek ways to pressure HP to enter talks about a combination of the two printer companies.
Evercore ISI analyst Amit Daryanani writes in a research note Wednesday that Xerox would likely need to raise its offer to convince HP's board, management team, and investors to support a combination. He asserts that Xerox could offer as much as $26 a share "and still drive meaningful accretion."
Daryanani continues to see three paths forward for HP's shares to move appreciably higher:
A Higher Bid: The analyst thinks Xerox can increase its bid to $26 -- he assumes $21 a share in cash, and the rest in Xerox shares -- and still be assured of substantial synergies. At that level, Xerox would be paying about eight times Ebitda, or earnings before interest, taxes, depreciation, and amortization, for HP. The combined company would have net leverage of about five times. But Daryanani noted that if you believe the assumptions Xerox makes on both revenue and cost synergies, then Xerox could potentially pay as much as $30 a share, which would require a net leverage ratio of six times Ebtida.
Go it alone: He thinks HP could continue to reject Xerox's offer, while laying out a more formal path to improved free cash flow growth. In that scenario, he sees the potential for a $27 stock price.
Massive buyback: A third option would be for HP to massively lever up its balance sheet and repurchase $9 billion to $10 billion in stock. That approach could drive the stock to $24, Daryanani wrote.
Neither HP nor Xerox immediately responded to requests for comment.
HP shares are down 0.5% Wednesday, to $21.86; Xerox shares are up 1%, to $36.39.