back to article HP to Xerox: Nope, your $33.5bn bid falls short of our valuation

HP’s board has spurned the advances of Xerox, saying the $33.5bn opening bid “significantly undervalues” the business. In a letter sent today to John Visentin, Xerox’s CEO and vice chairman, HP CEO Enrique Lores and chairman Chip Bergh said the HP board “unanimously concluded” the proposed price falls short of their valuation …

  1. Tim99 Silver badge

    For...

    one hundred billion dollars!

    1. Shadow Systems Silver badge

      Re: For...

      You forgot to stroke your fluffy white kitty & make the Doctor Evil pinky gesture. =-)P

      1. J. Cook Silver badge
        Go

        Re: For...

        The response is pretty much the same as the world leaders- mass laughter at the amount demanded.

      2. The Oncoming Scorn Silver badge
        Paris Hilton

        Re: For...

        We really need a icon for "fluffy white kitty & make the Doctor Evil pinky gesture", in the meanwhile this will have to do as closest match.

  2. simonlb Silver badge
    Unhappy

    "not in the best interests of shareholders"

    As usual, what is in the best interests for the company and for its staff doesn't factor anywhere, just make sure the shareholders get their extra few cents on their next dividend and fuck the employees. HP doesn't need to merge with another company, it needs to sort out the quality and longevity of its printers, rationalise the software it supplies with its printers (would Sir like 1Gb of Disney branded shit ramming onto your machine with your drivers?) and price its consumables competitively. The USP of having the print head on the ink cartridge has served HP well for 35 years but everyone else has caught up now and there is no noticeable advantage to that design any more, so they should consider ditching it and moving to a separate print head and ink cartridge (like everyone else) to significantly reduce the price of their cartridges as its the main reason the bottom has fallen out of their entire printer business model anyway.

    And as for the shareholders, bollocks to them! It may seem old fashioned now, but the 'HP Way' which Bill Hewlett and Dave Packard used to manage the company served it very well for over 60 years when it made a profit in just about every single operating quarter while having a very happy, productive and fiercely loyal workforce as well as producing high quality, reliable products which people were prepared to pay for and which gave good service.

    1. Charlie Clark Silver badge

      Re: "not in the best interests of shareholders"

      While you're right to be annoyed, the duty of a company's board has always been to its owners, which can often mean a quick sale for cash now. and screw the future. The current trend in the US is to market concentration with the expected higher prices intended to pay for the acquisition.

      Things started changing in the 1980s with market deregulation and changes in accounting and tax law which made debt-financed buyouts possible and then atractive, because debt can be registered as a charge and capital gains is taxed less than income.

      I think we can assume that some kind of merger here will go through.

      1. Persona Bronze badge

        Re: "not in the best interests of shareholders"

        "the duty of a company's board has always been to its owners"

        Agreed, and if the board doesn't respect that, it can expect to be voted out and replaced by a board that does.

        1. Anonymous Coward
          Anonymous Coward

          Re: "not in the best interests of shareholders"

          It might stink, but it's all connected.

          Pension funds are the "owners" of most stocks. So forgetting to make money means grandma has to eat less of a lower grade of cat food.

          People do what they're incentivised to do. The current scheme of rewarding the C suite and board members via stock options - because no one wants the optics of eye-watering amounts of cash - is at fault for a lot of the evils here. The system has allowed them to vote on their own pay.

          I don't feel anyone should be entitled to a "good paying job in nice conditions" if they don't produce more value than they cost. If you do, that's a different discussion. Marxism only works till you run out of other people's money.

          Good luck changing the rules as they are, since the people who enforce them are the ones who benefit. It's "we've let the plebes vote for bread and circuses" again, just at the level of not-plebes who get their way whether anyone else likes it or not.

          This is a long winded way of saying "follow the money", of course.

          1. Doctor Syntax Silver badge

            Re: "not in the best interests of shareholders"

            Pension funds should take a long term view. If they don't it's a sign the trustees are eating at the same trough as the execs of the companies they own.

          2. rcxb Bronze badge

            Re: "not in the best interests of shareholders"

            I don't feel anyone should be entitled to a "good paying job in nice conditions" if they don't produce more value than they cost.

            That's never been the problem. Money-losing companies go away soon enough.

            The problem is when a good, solid, stable business is making plenty of money, but since other companies (perhaps less steadily and reliably) are making MORE MONEY, QUICKER at any given point in time, something is wrong with the otherwise good and profitable business, and drastic moves to turn greater profits MUST be done. Laying off good and profitable employees (i.e. eating your own seed corn and guaranteeing less profitable future quarters) is often Step #1 on the list.

        2. Charlie Clark Silver badge

          Re: "not in the best interests of shareholders"

          That is the theory at least, though in practice it virtually never happens. Instead, investors prefer to buy enough stock to get a seat on the board, 4 - 5% is usually enough, and get the ball rolling there. Shareholder votes have for years been dominated by large investors, with cross-shareholdings and monosopodic practices leading to a form of regulatory capture. For example, Black Rock often owns large parts of competing companies, and Icahn might well have shares in Xerox. The odd thing is that this is all perfectly legal.

          1. vtcodger Silver badge

            Re: "not in the best interests of shareholders"

            The odd thing is that this is all perfectly legal.

            Why do you find that odd? As the Russians say "Everything Marx told us about Socialism was wrong. Unfortunately, everything he told us about Capitalism was right."

            1. Charlie Clark Silver badge

              Re: "not in the best interests of shareholders"

              Odd is that companies themselves can't indugle the same kind of cross-ownership that investors can. I assume that nobody ever expected this to be a problem.

              1. Doctor Syntax Silver badge

                Re: "not in the best interests of shareholders"

                From the point of someone with pensions I don't have a problem with the pension funds spreading out the investment and that includes having investments in competing businesses. OTOH I don't want to see winner-takes-all monopolies developing because I want to see all those competing businesses prospering.

            2. Stoneshop Silver badge

              Re: "not in the best interests of shareholders"

              Die armen Ostdeutschen. 40 Jahre lang wurde ihnen erzählt der Kapitalismus sei zynisch und menschenverachtend. Und 40 Jahre lang haben sie geglaubt das wäre eine Propagandalüge. -- Hagen Rether

              1. Charlie Clark Silver badge

                Re: "not in the best interests of shareholders"

                Well, I guess you could argue that the SED was even more cynical and respected human dignity even less. The problem is that we, as humans, seem predisposed to prefer clarity or certainty over truth.

          2. Doctor Syntax Silver badge

            Re: "not in the best interests of shareholders"

            "Icahn might well have shares in Xerox"

            According to the previous article on this he does.

            1. Mark 85 Silver badge

              Re: "not in the best interests of shareholders"

              "Icahn might well have shares in Xerox"

              According to the previous article on this he does.

              There's the big problem. The HP board's statement “In reaching this determination, the board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsized debt levels on the combined company’s stock, It pretty much says they have Icahn's strategy figured out: he'll bleed them dry and destroy whatever is left.

              1. ecofeco Silver badge

                Re: "not in the best interests of shareholders"

                "he'll bleed them dry and destroy whatever is left."

                This would only be news to those born yesterday. It's his M.O. and has been for decades.

      2. Terje

        Re: "not in the best interests of shareholders"

        The issue is that the best interest of shareholders seems to be evaluated over a ever shortening future times span, and not over the longer time span that would be the responsible thing to do for both the company and shareholders. It's a simple fact that the two questions "How do we give the shareholders the most money NOW" is very rarely compatible with "How do we give the shareholders the most money over the next ten years"

        1. Doctor Syntax Silver badge

          Re: "not in the best interests of shareholders"

          "How do we give the shareholders the most money over the next ten years"

          This is the question pension fund investors should be asking.

      3. Doctor Syntax Silver badge

        Re: "not in the best interests of shareholders"

        Screwing the future is not in the long term interests of shareholders. The share price should surely reflect the long-term prospects.

        1. Yet Another Anonymous coward Silver badge

          Re: "not in the best interests of shareholders"

          >Screwing the future is not in the long term interests

          It is if those shareholders intend to sell as soon as the deal goes through. Or intend to buy it with debt, take millions in fees and then let it go bust.

    2. Doctor Syntax Silver badge

      Re: "not in the best interests of shareholders"

      "high quality, reliable products which people were prepared to pay for"

      Not just prepared to pay for but to pay a premium price for. Not a bad business model if you're prepared to put the effort into maintaining it.

  3. sbt Silver badge
    WTF?

    Has this ever ended well?

    I keep hearing about these debt-funded buy-outs where the minnow tries to swallow the whale, but I've never heard of it being particularly successful. It just seems like a way to get the financiers' hooks back into legacy businesses that really can't remain profitable and service the debt.

    Any examples available where the reverse takeover has been a net win and strengthened the resulting entity?

    1. Persona Bronze badge

      Re: Has this ever ended well?

      It can end well. Wendy's reverse takeover of Burger King springs to mind as it brought in a more aggressive and capable management and allowed reduction of duplicated effort. A helping factor was that Burger King was already saddled with debt and as they were stood had little hope of ever discharging the debt.

      1. sbt Silver badge
        WTF?

        Are you thinking of Tim Horton's?

        Thanks, but I can't find any references to any M&A transactions between Wendy's and BK.

        1. Imhotep

          Re: Are you thinking of Tim Horton's?

          Donuts have been my most satisfying investment. Thanks to them, I'm constantly expanding.

      2. Kabukiwookie Silver badge

        Re: Has this ever ended well?

        Even if it does end well for the companies involved it never ends well for the consumer.

        Less competition results in higher prices, reduced quality or more often, both.

        1. ecofeco Silver badge

          Re: Has this ever ended well?

          It never ends well for the employees either.

          You know, all the usual peasants.

    2. Charlie Clark Silver badge

      Re: Has this ever ended well?

      Unless the debt can be magicked away then the resulting entity is normally to endebted to survive. What generally happens is that the merger is followed by restructuring, spin-offs and sales, etc. For example, Xerox might want to focus on the printer and copier market and look for a buyer for the other stuff.

      For a while 3G Capital had a good reputation for these kinds of deals but they've started to sour over the last few years. And, of course, this is the model of the company that bought Broadcom. But a lot of the time the financial engineering is what determines whether something is a success or not.

    3. vtcodger Silver badge

      Re: Has this ever ended well?

      When Mike's Taco Truck proposes to buy out a major fast food franchise, it's possible that Mike is a brilliant manager who will, over time, greatly enhance the value of the restaurant chain. But it's also possible that Mike is a scam artist who will gut the fast food business, pocket all the loose cash, and be found drinking Pina Coladas in the Cayman Islands when the crazed fiscal monstrosity he creates eventually crashes.

      Which scenario do you think is more likely?

  4. Pascal Monett Silver badge

    Oh, HP is mentioning due diligence ?

    Wow. Maybe somebody is actually remembering something about the past and doesn't want a repeat - that'll be a first for HP.

    Apart from that, it's management as usual. Kudos for having erased a layer of management, that's new, but 9000 layoffs to "save costs" ? Looks like not everything is changed at HP after all.

  5. Maximum Delfango

    HP has a point...

    I’ve spent more than that with them on ink.

  6. revenant Silver badge

    "No brainer" (Icahn)

    I really hate that term. It implies that a decision is so obvious that the details don't need to be thought about.

    The trouble is, it's the possibilities that you didn't think about that later pop up and bite you on the bum.

    It's not a good decision-making method when large amounts of money are at stake.

    1. big_D Silver badge

      Re: "No brainer" (Icahn)

      You can usually tell when Icahn wants something, it is all about reaping in the biggest leap in stock price in the next quarter, the future of the company be damned.

      As long as the company is still in business and the stock price still buoyant when he dumps the stock, everything is fine, what happens after that is irrelevant.

      This sort of corporate raping investment is what is wrong with modern business. The executives strive to make a go of it and these corporate raiders come in and ruin everything for a quick buck and don't care if they destroy companies or lives in the process. The stockholders should be pushing for long term stability and gain, not how much they can make in the next quarter.

    2. Snowy Silver badge
      Thumb Up

      Re: "No brainer" (Icahn)

      Or it is only something you would do if you had no brain :)

  7. Blackjack

    LBOS LBOS, MONEY FOR NOTHING WITH LBOS!

    I honesty think leveraged buy outs should go back to being illegal.

    1. ecofeco Silver badge

      Re: LBOS LBOS, MONEY FOR NOTHING WITH LBOS!

      Damn right. It's a criminal con job all the way.

  8. luis river

    Hp inc real value What it is ?

    CEO HP C Fiorina year 2002 buyout Compaq 24 billon, that includes digital equip and Pcs business.I dont seem today HP inc is superior value.

    1. Imhotep

      Re: Hp inc real value What it is ?

      The market has already set a value on the company - that's what the stock market does - that is less than what Xerox is offering, so we have one value there.

      To tell the truth, I look at some of those valuations and just think someone is insane: myself or all the people willing to buy shares at that price. It's an uncomfortable feeling.

      1. Adrian 4 Silver badge

        Re: Hp inc real value What it is ?

        I think we all know how good HP is at valuing companies.

      2. Kabukiwookie Silver badge

        Re: Hp inc real value What it is ?

        At least in the US income from stocks is taxed at a lower rate than income from labour.

        What else are you going to do if you have a couple of billion laying around? It's easy money.

    2. Blackjack

      Re: Hp inc real value What it is ?

      Not to mention they have lost their monopoly on printing.

      Heck my last printer is a seven year old laser printer and it only prints on black.

      And if I had to buy one that uses ink my first question would be "Does it work well with generics?"

  9. Eccella
    Facepalm

    I recall Vodafone swallowing Mannesmann after the Germans made an offer. Voda sold all the art in the Dusseldorf board room and were labelled "Cultural Barbarians". Whether that could be called a sucess is another matter......

  10. John N

    Hard bargain

    Is this going to end up where HP's board begrudgingly accept $36bn but take all the light fittings, blinds and restroom hand dryers with them?

    1. Roland6 Silver badge

      Re: Hard bargain

      Well with the recent and on-going Hp initiated litigation, I hope Xerox put a clause in the contract that mean the HP directors don't get their monies until 5+ years after the takeover - just to give time for any dubious accounting practises to rear their ugly heads...

  11. spold Silver badge

    John!

    ...stick another pile of cash through the copier!

  12. Anonymous Coward
    Anonymous Coward

    Re: Academics

    HP is too atherosclerotic to be saved.

  13. Doctor Syntax Silver badge

    "the potential impact of outsized debt levels on the combined company’s stock,”

    So they eventually worked that out. It's taken them long enough.

  14. ecofeco Silver badge

    HP died years ago

    In fact it died not long after H & P both retired.

  15. Blake St. Claire

    IBM paid $34B for Red Hat

    I'm pretty sure HP is thinking to itself that it's got to be worth more than Red Hat – way more.

    Does anyone think IBM paid too much?

    1. luis river

      Re: IBM paid $34B for Red Hat

      RedHat is pure soft company ( very more valuable ), hp inc their principal business is "Iron" not is valid that comparison. The time will say if purchase of RH by IBM is one bargain or not.

  16. Herby

    Of course there are other options....

    Perhaps another sillycon valley company (which has a bunch of $$$ floating around) that has IP addresses that start with 17 (one more than HP's) might be in the market, you never know....

    The other option might be for HP to acquire Xerox. It has happened before.....

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