HP (HPQ) stock was rising in premarket trading on November 14. Carl Icahn has bought a stake in the company amid its consideration of the Xerox deal. The stock had risen around 2.41% in the premarket session as of 8:58 AM ET. It closed flat at $19.53 on November 13.
HP stock is trading 20.1% below its 52-week high of $24.43 and 22.6% above its 52-week low of $15.93.
Carl Icahn buys a stake in HP
Activist investor Carl Icahn has bought a stake in HP, as reported by the Wall Street Journal on November 13. Icahn has taken on a 4.24% stake in the company for around $1.2 billion. As a stakeholder, Icahn is trying to push the company toward a merger with Xerox Holdings (XRX), in which he already holds a 10.6% stake.
Icahn also told the WSJ that an HP-Xerox union is a “no-brainer.” The billionaire investor added, “I believe very strongly in the synergies,” according to Reuters. As a result, he’s pressuring the PC maker to think about the takeover bid. According to him, the proposed merger of HP and Xerox could yield significant profits for investors.
On November 6, HP confirmed in a statement that it had received a buyout offer from Xerox. However, it didn’t disclose the offer price. The next day, Xerox Holdings announced the takeover offer of $22 per share. It stated that it would acquire HP with 77% cash and 23% stock. At $22 per share, Xerox values HP at around $33 billion, inclusive of debt. It’s now awaiting HP’s response.
Xerox has given HP a month for due diligence matters before deciding on its response, according to Bloomberg. During these four weeks, the companies will look at each other’s books and evaluate the cost savings the merger could provide.
What the Xerox deal has to offer
The combination of PC maker HP and printer maker Xerox would undoubtedly change the landscape of the printing industry. Xerox said in a statement reported by CRN, “Our industry is long overdue for consolidation, and those who move first will have a distinct advantage.” According to Xerox, the deal will result in significant cost savings. According to a Reuters report last week, the deal will create an office technology supply giant. The HP-Xerox combination could bring in at least $2 billion in cost savings annually, per reports.
Icahn also believes that the deal would benefit the shareholders of both companies. It could also create a more balanced portfolio of printer offerings.
In addition to cost savings, Xerox would be able to nab a higher market share in the industry via the deal. It would also be able to better compete with rivals Canon and Ricoh. Xerox would also be able to expand in Asia, where HP has a strong presence.
The deal comes at a time when both companies are struggling in the printing industry. The declining demand for paper in the changing digital environment has dented the printing businesses of HP and Xerox. Xerox has been suffering from low sales of its printers and copiers for quite some time. Further, its revenues have been falling since 2012 and could fall another 6% YoY (year-over-year) in 2019. Weak printer supplies have also dented HP’s printing business. In the third quarter, its printing revenue fell 5% YoY on a constant-currency basis.
Uncertainties surrounding the HP-Xerox deal
However, there have been many opposing views as to who should be the buyer and who should be the seller in this deal. HP is a much larger company than Xerox in terms of market value. As of November 13, Xerox had a market cap of $8.13 billion, while HP’s was $28.9 billion. Jim Cramer, CNBC’s Mad Money host, also remains skeptical as to whether Xerox can complete an HP buyout.
HP’s shareholders aren’t yet convinced of the deal. As per a report from Channel Asia, the company is also looking for other options.