HP Hints It Won't Support Xerox's Higher Bid. A Stock Buyback Is Looking Likely. -- Barrons.com
By Eric J. Savitz
Something is brewing at HP Inc., and there are hints that Xerox Holdings might not like what the company has in mind.
On Tuesday, HP (ticker: HPQ) said it will announce earnings on Feb. 24 for its fiscal first quarter ended Jan. 31. More interestingly, it said it would also "share additional information about its plan to drive sustainable long-term value for its shareholders, including through the execution of the company's multi-year strategic and financial plan and the deployment of its strong balance sheet."
HP added that it "wants its shareholders to have full information on the company's earnings and the value inherent in the company before responding" to the recently increased $24-a-share takeover bid for the company from Xerox (XRX).
Xerox began its pursuit of HP in November with a bid of $22 a share. HP repeatedly rejected the offer as too low. Xerox has now increased its bid, proposed a slate of directors to take control of HP's board of directors, and is threatening to initiate a tender offer for HP shares in early March.
To date, HP hasn't responded to the higher bid, which consists of $18.40 in cash and 0.149 Xerox shares for each HP share. Xerox continues to say that it sees at least $2 billion in cost synergies from combining the two companies. It has also said that it has borrowing commitments to fund the cash portion of its bid.
HP repeatedly has said it has other paths to boost shareholder value, including potentially leveraging up its balance sheet and conducting a large stock buyback program.
In a research note Wednesday, Evercore ISI analyst Amit Daryanani wrote that based on the language in the news release, he thinks HP will likely pursue a stand-alone path, perhaps initiating a large share repurchase, and could announce incremental cost-cutting measures. He said a higher share price or a more levered balance sheet, or both, could make the company a less-attractive takeout candidate.
HP shares rose 1.1%, to $22.48 on Wednesday. The Dow Jones Industrial Average gained 0.9%.