In a direct appeal to HP shareholders, Xerox says its offer to buy its larger rival would create a $US66.8 billion printing industry giant and deliver $31 a share to HP shareholders. HP’s board rejected an earlier $US33.5 billion takeover bid from Xerox that had offered shareholders $22 a share. Xerox has also revealed it has its eye on 50,000 worldwide HP Wide Format customers and an estimated 10,000 global installations of HP’s flagship printer, the HP Indigo Press.
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"A clear path to realizing increased
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In a 33-page letter that outlines $2 billion in synergies to be achieved by the proposed deal, Xerox CEO John Visentin says HP shareholders would receive $17 per share in cash and 48 percent of the new combined company.
“Dear HP Shareholder, There is a clear path to realizing increased value from your investment in HP — the proposed transaction with Xerox,” Visentin says in the presentation titled HP + Xerox A Value-Creating Combination.
“We are offering a combination of cash and stock with an aggregate implied value of ~$31 per share (an 82% premium to HP’s unaffected 30-day volume weighted average price) comprised of the following components:
- $17 per share in cash, which equals 100% of HP’s unaffected 30-day volume weighted average price; and
- 48% of the pro forma combined company, which we believe is worth ~$14 per share, without multiple expansion or revenue synergies.
“The value of the transaction goes beyond economics," says the Xerox CEO. "In consolidating industries, first movers not only win but also have an opportunity to reshape the competitive landscape in an enduring way. Increased cash flow generated by this deal will allow for rapid de-leveraging, greater capital returns to shareholders and enhanced investment in innovation that can put these storied brands at the forefront for decades to come.”
Xerox says its proposed acquisition of HP would create a combined company worth $US66.8 billion.
The letter states: “HP is a market leader in four segments (Home, Office A4, Production and Packaging) and is moving deeper into Industrial Printing, but key gaps remain in the segments where Xerox is a market leader (Office A3, Managed Services, Entry Production, Production Mono and B3 Color Cut Sheet).
“Our complementary hardware, software and service offerings paired with our complementary routes-to-market provide the combined company with an opportunity to increase its total addressable market. Specifically, each can cross-sell one another's technology into its existing install base and drive incremental revenue, all while eliminating duplicative SG&A costs.”
On page 32 of the 33-page letter, Xerox also revealed it has its eye on 50,000 worldwide HP Wide Format customers and an estimated 10,000 global installations of HP’s flagship printer, the HP Indigo Press.
“Xerox is uniquely positioned in the market with its cloud and SaaS software offerings – an area where spend continues to grow,” says the letter. “Selling Xerox’s offerings to HP clients with the following devices provides an opportunity to grow revenue and improve the client experience”:
HP's wide format devices include the HP Latex series, HP DesignJet and HP PageWide. Xerox XMPie solutions are already fully integrated with HP’s operating system PrintOS.
The new presenation from Xerox follows last week’s appeal to HP shareholders by billionaire Xerox and HP shareholder Carl Icahn.
Icahn ally Visentin tells HP shareholders that the new combined company will be both "more profitable and better positioned to provide customers with a stronger mix of products, services and support than either company can do on its own.
“We strongly encourage you to urge HP’s Board of Directors to pursue this transaction on a friendly basis, starting with the provision of mutual due diligence.”
Publisher's comment - Andy McCourt
Finally, a Xerox document that actually acknowledges one of the most profitable and most growth-likely parts of HP should the take-over happen - HP Indigo and Industrial printing. It would also be good to acknowledge PageWide inkjet as applied to packaging and commecial/book/transactional print. This was identified by Wideformatonline over a month ago here: Textiles, symbolised by HP's launch into dye-sub with the Stitch series earlier this year is also a B2B sector destined for growth.
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| Andy McCourt, publisher Wide Format Online |
Nevertheless, the release of the 'sweetener' proposal still displays a naiivite about commercial-industrial print and HPs position in it, as the company continues to be referred to by analysts as 'PC manufacturer HP' or 'Office printer and PC manufacturer.'
As always, commercial print-for-profit applications are put in the 'too hard basket' for the uninformed because the false shibboleth of 'print is dead or dying' echoes the parrot-caged halls of Wall Street. Say it enough times and everyone will believe it.
Here's a few factoids that won't cost the megabucks of consultants fees and analysts, Mr Visentin :-)
Factoid one: The office printing/copying market including MFPs is in decline and will remain in decline. A truly great market in its heyday when Xerox made so much profit, the US government suggested it should set up its own 'discovery University' - Palo Alto Research Centre which spawned the PC, Mouse, Laser printer and so on. Office and home A4/A3 printing is not coming back to its former glory days - information is moving to the Cloud and screens. By the way, what is B3 colour cut sheet? Did you mean SRA3+? Yes, the iGen has been a great machine, with emphasis on 'has been.' The Iridesse is fantastic but, hey, that's a Fujifilm machine and you are divorcing Fujifilm!
Factoid two: You refer to 'the HP Indigo digital press' as singular. Sure, it launched in 1993 as one press - the EPrint 1000 - but today, thanks to HP's continued investment, the range covers multiple presses and industry sectors including: Labels, Flexible packaging, commercial print, SRA3 high quality colour (better than anything Xerox has) and HP is not 'moving' into these industrial sectors; it's been in there for years. Take Labels - 75% world market share of digital label presses is not 'moving into' - it's market dominance, albeit inkjet (which another HP division caters for) is challenging this dominance. Did you notice a company named ePac ordering, a total now of over 50, HP Indigo 20000 flexible packaging machines to convert Flexo-printed pouches over to digital - and succeeding? That's around $200,000,000 in sales to one customer over a three-year period; plus the recurring ink and service sales. Xerox didn't even get a look in.
Factoid three: in the chart 'Xerox Attach opportunity' is listed XMPie and FreeFlow as if these would be newly available to HP industrial print customers. I can hear them all laughing now! XMPie has been available to anyone for years and years - nice product but it brings nothing new to the party. When Xerox bought XMPie for $54 million in 2006, a lot of people were fearful it would become unavailable to non-Xerox customers, so an assurance that it would retain its name and be sold openly was made. As for FreeFlow - do you seriously think HP's Print OS is inferior to Freeflow? And didn't Xerox sell FreeFlow DFE to EFI in 2017? As for the highly successful Label side of HP Indigo presses, they don't need nor want XMPie or FreeFlow - they use Esko Automation Engine, Hybrid PacZ and HP Indigo work with these third parties to ensure seamless integration. And serious wideformat users favour Rip/workflows such as Caldera, Onyx, Wasatch, SAi etc - you need to work with these.
Factoid four: I'm intrigued by the comment: “The value of the transaction goes beyond economics," says the Xerox CEO. "In consolidating industries, first movers not only win but also have an opportunity to reshape the competitive landscape in an enduring way." I agree, first movers do well but wait a minute: Indigo IS a first mover and continued to be under HP's ownership from 2000 on. Not only that, but at the printing industry's major global trade fair - Drupa, Germany in 2016 - HP became the biggest exhibitor and is repeating that position next June 2020. That means something - when it comes to digital print and sector applications - the market trusts HP Indigo. They have already 'reshaped the competitive landscape in an enduring way.' In this market, Xerox was not a first mover. It wasn't even a third mover as Canon, Indigo, Xeikon and later Konica Minolta and Ricoh started to trounce Xerox in production colour.
The financial offer looks very attractive to Xerox and HP shareholders, no doubt about it. But, isn't it really about saving Xerox from further decline and not so much about the benefits of uniting the 2 companies? From the view of HP Indigo customers, it's a bad idea - we conducted a survey recently and it was universally claimed that a Xerox-majority led HP would not be ideal, whereas an HP-led Xerox could save the company (Xerox). The Xerox and HP Indigo cultures are quite different, as are their product portfolios.
I guess in the end the financial wizards of Wall Street will win the day but, there are a lot of nervous customers out there.
