Open wide, very wide: Xerox considers buying HP. Yes, the HP that is more than three times its market cap

Xerox is reportedly mulling a daring multibillion-dollar bid to take over hard-pressed HP Inc – a company that has three times its market capitalisation. According to the Wall Street Journal, the board at Xerox convened yesterday to consider a combined cash and stock offer. NYSE-listed HP currently has a market cap of $27.27bn …

[macjules]

Trebles all round?

Deloitte was Autonomy's auditor; Ernst & Young is HP's (not HPE). KPMG provided approval advice on the deal to HPE. PwC has been hired by HPE to sort through the mess. If HPE's claims are true, Deloitte, Autonomy's auditor, should be the one in the firing line.

PWC are Xerox's auditor. Xerox, not surprisingly, would not appreciate KPMG being involved at any level.

[adam payne]

As for Xerox, the buy would propel the combined entity into the print/copier stratosphere as Xerox's strength in the contractual copier space is one that HP has tried to break into, buying Samsung's A3 business to lead its charge.

It would also interest every competition watchdog in the world.

Even if the shareholders at HP agree they will still have a lot of work to do to get it past the watchdogs.

[katrinab]

It looks like a very good exit for HP Ink shareholders.

And therefore it looks like a very bad deal for Xerox shareholders.

[Blackjack]

HP already has a lot of debt.

If they plan to buy HP by using a leveraged buyout then it won't even last five years before bankruptcy.

[Mark 85]

That might be the plan. Xerox buys HP. HP goes belly up. Xerox meantime has the technology, etc. and one less competitor. Maybe not that simple but getting HP out of the printer business would be a big deal for Xerox.

[Death_Ninja]

Trashing the competition

Its a strategy some pursue, but buying a competitor three times your market cap only to trash it?

The pressure from Wall Street would break CEO after CEO thats for sure - the shares would surge on the merger and then expect to see the share price go up, not for you to basically dismantle it and throw it in the skip.

You'd be hard pushed to show that the drop in value was just due to merger turmoil while you seek "synergies" if you actually were simply removing a brand from the market - at that point, your own brand.

[Anonymous Coward]

for lessons on why not to do this look at thomas cook.

[STOP_FORTH]

Technical Titans

Two mighty companies that invented the modern world.

Now they flog ink.

[MyffyW]

Re: Technical Titans

At least neither of them pinned their hopes on winning Jeopardy.

[STOP_FORTH]

Re: Technical Titans

It's worse than that. Why would you create all of the technology for a paperless office and then bet the company's future on printers?

At least there is a chance of winning Jeopardy. (I assume, I have never seen it.)

[NickyD]

Plus ca change

"that includes jettisoning costs by making 9,000 employees redundant"

Hats off to the the bold new strategy, surprised no one thought of that before.

[Anonymous Coward]

Re: Plus ca change

Maybe when they are doing the cutting, they can cut back on the merged company name. "Xero" sounds good

[katrinab]

Re: Plus ca change

My PHB thinks company names should be TLAs, so if he was in charge, it would be XHP.

Even if xhp.com was registered by someone else 21 years ago.

[Anonymous Coward]

Plus ça change...

DEC were fucked by senior management and were bought by Compaq.

Compaq were fucked by senior management and were bought by HP.

HP were fucked by senior management and could be bought by Xerox.

Anyone see a pattern here?

I'm sure Xerox will be fine, as history never repeats itself, never...

[Anonymous Coward]

Re: Plus ça change...

You can apply that rule to most big companies - because the PHBs are chasing their next golden egg. The easiest way to achieve that is to show savings... and the easiest way to do that is by culling the workforce.

By the time the effects are felt those feckers are looooooong gone.

[Anonymous Coward]

Re: Plus ça change...

You forgot Tandem.

DEC bought Tandem, then Comaq bought DEC, then . . .

[Steve Davies 3]

Re: Plus ça change...

It was Compaq that bought Tandem and then bought DEC.

I was working at DEC at the time.

For a while under Compaq we had to account for our hours as if we were building PC's and not working on long term services projects in four or five countries. When they offered me an exit door after 20 years, I took it. Back then, that meant 20 months pay. Paid off the mortgage the next day.

Those were the days.

[BebopWeBop]

Re: Plus ça change...

I was working t HP when they bought Compaq. I have to say at a technical level we though great - all that lovely Ditial tech and people. Unfortunately, we go the Compaq people as well.

[Zippy´s Sausage Factory]

Hostile takeover?

Could they do a Michael Milken and issue a load of junk bonds, then do a morning raid, like Michael Milken did when Bridgestone took over Dunlop. Then it's just getting it past the regulators. Once they own enough of the company, HP's board no longer matters.

Oh but wait - the main idea of a hostile takeover is surprise... kinda lost that as a possibility now.

[Charlie Clark]

Re: Hostile takeover?

Nowadays you don't even need junk bonds for this kind of takeover.

[Stoneshop]

the main idea of a hostile takeover is surprise...

Our main weapons are fear, surprise, and a fanatical devotion to the shareholder.

[EveryTime]

Re: the main idea of a hostile takeover is surprise...

Our main weapons are fear, surprise, and a fanatical devotion to the largest "investment banks".

[EarthDog]

Re: the main idea of a hostile takeover is surprise...

Our greatest weapons refer, surprise, and a fanatical devotion to bonuses

[MyffyW]

Re: the main idea of a hostile takeover is surprise...

... and nice red uniforms

I'll come in again, our greatest weapons are ....

[Scott Broukell]

Those $$$ Billions of dollars - that would also be equal to the cost of the printer ink used for the legal paperwork involved would it? - just saying.

[katrinab]

Yes, they will sell lots of ink to the lawyers, but not that much, as the lawyers will mark it up by about $150 per page and bill it back to them.

[eldakka]

Only if they were stupid enough to get their ink from HP or Xerox.

[Col_Panek]

HP's market cap is based on their assets, calculated by multiplying their stockpile of ink by $3.71 a milliliter. So, 0.683 Olympic swimming pools, times...

[a_yank_lurker]

Two semi-marginal companies

What I see is two semi-marginal companies whose glory days are well behind them being combined to make a marginally larger semi-marginal company. It is not as if they are no others in their industries to choose from that if either or both disappeared there would be great angst in the world.

[Halfmad]

Re: Two semi-marginal companies

Means they only pay for one coffin instead of two when the company, presumably with a new stupid name eventually dies.

[Anonymous Coward]

Re: Two semi-marginal companies

I suspect Computer Associates will be watching furtively from the sidelines, only dreaming of a threesome.

[Michael Wojcik]

Re: Two semi-marginal companies

CA doesn't want to be in the physical-things business. But now that it's a subsidiary of Broadcom what it wants is likely moot.

[Lazlo Woodbine]

This is a bit like when Porsche tried to buy Volkswagen and ended up being bought by Volkswagen when the deal went titsup...

[john.jones.name]

they had unions

Porsche was making its profits based on Volkswagen shares then the unions woke up and realised they had Volkswagen golden shares...

all a little different primarily because of unions, of which HP and xerox don't have those shareholdings

Xerox could easily get this done on a financial level however the competition watchdogs would understand printing and there is no way the EU would let it happen without heavy concessions which they are not going to make...

easy way would be for HP to say YES put your money in escrow and we want a break up fee...

HP SHAREHOLDER get deal breakup fee and increase in stock price !!! awesome job...

[Anonymous Coward]

Re: they had unions

"Xerox could easily get this done on a financial level however the competition watchdogs would understand printing and there is no way the EU would let it happen without heavy concessions which they are not going to make..."

Looking at global market share, HP is around 2% of the global copier market and Xerox is 17% (3rd biggest behind Canon and Ricoh) and in the global printer market, HP and Canon are both around 22% and Xerox is in "other" so less than 2%. Regionally HP may have larger market shares but the trends are all downwards.

I could understand HP attempting the deal (but probably failing) given the synergies between printing and copying that Canon and Brother seem to get but not sure Xerox could handle the debt burden required to make this work financially. The banks would likely lose when Xerox went under but win picking off the assets...

[sal II]

Funding

How are they going to fund it? the 3Bn windfall from the the Fujitsu JVs and lawsuits are barely 1/10 of what they need.

The interests on a 27Bn loan for God knows how many years will be crippling for already struggling businesses. There is only so much that streamlining and economy of scale can achieve in terms of savings.

Seems like some C suits are looking for a way to cash in from the transaction and then jump ship.

[Steve Davies 3]

Re: How are they going to fund it?

Debt. Debt and loads of it.

The problem is that sooner or later the Debt has to be paid back (or the company goes TITSUP). Even if it is paid back, there could be so much of it that the Company still goes TITSUP.

The problem is that far too many MBA's are chasing that gold at the end of the rainbow. As soon as they see that their current expedition will be a dud, they jump ship and try again.

Debt is a real company killer. VC's love to load companies up with it and then do an 'exit stage left' before anyone notices.

[aks]

Re: How are they going to fund it?

With borrowing so artificially low and the business horizon so short-term, debt is addictive. Just look at what governments are doing. It will all end badly, except for the board member who will have jumped ship before the shit hits the fan.

[EveryTime]

Re: How are they going to fund it?

Interest rates are low to encourage companies to make investments that will improve efficiency and productivity.

But investing and innovation is risky and takes time. Instead upper management see cheap borrowing as a way to buy other companies. The buying management gets more power, immediate bonuses and higher pay. The bought management gets golden parachutes. The workers see rounds of internal competition and layouts.

[EarthDog]

Re: How are they going to fund it?

Their definition of "innovation" is financial shell games to come up with funding to buy a company no sane person would buy for any reason. Using Yapenese Rai to borrow cryptocurrency and then use it as an asset to leverage bond purchases which would then, along with a mortgage on cash flow, to buy HP Inc.? Now that's innovation! See also NINJA loans back in '07

If you didn't get the reference here is an article on Rai: https://en.wikipedia.org/wiki/Rai_stones , a pretty solid and stable form of currency.

[Doctor Syntax]

Re: How are they going to fund it?

And economists still wonder why productivity has stayed flat.

[Stoneshop]

Re: How are they going to fund it?

The problem is that far too many MBA's are chasing that gold at the end of the rainbow.

s/the rainbow/next quarter/

[Nolveys]

Re: How are they going to fund it?

The problem is that sooner or later the Debt has to be paid back

That's not going to happen. Something will happen, but not that.

[The IT Ghost]

Re: How are they going to fund it?

What will happen is, eventually a Chapter 13 bankruptcy to wipe out the interest for a few years while they "reorganize". Then some venture capitalists sink some money in it to bring the company back to life- temporarily. Then either another round of Chapter 13 or Chapter 11 in an attempt to get rid of the debt for a fraction of its value. Then Chapter 7, and it all wraps up. Meanwhile, the top execs have gathered lots of nice fat paychecks, and then "moved on" at each stage as part of the reorgs. Next set of C-levels come in with grand emails to the surviving staff, only to lay off a few thousand more. Then that set of C's moves on, and its repeated by the next ones. Eventually cutting staff doesn't prop up the books anymore and someone realizes they actually need revenues. Then they file Chapter 7 because none of the "leaders" have any idea how to actually make and sell products at a decent price.

[Reg Reader 1]

Re: How are they going to fund it?

after which a Chinese company will buy what's left for any IP they may want and the names as those will still be know to consumers.

[Doctor Syntax]

Re: How are they going to fund it?

Then they file Chapter 7 because none of the "leaders" have any idea how to actually make and sell products at a decent price.

[fredj]

Re: How are they going to fund it?

Yes, we all know that but it happens so often that is a standard business practice. Debt must have a positive value for some purpose. Maybe it is for tax avoidance? One thing for sure, it is not for the benefit of Jo Public.

[JohnFen]

What's that sound?

I think it's dinosaurs eating each other.

[Jay 2]

Re: What's that sound?

Nom, nom, nom -> keels over after eating something bad -> extinct

[Pascal Monett]

Only in the business world

An $8bn company starts talking about buying a $27bn company. Reality stares back and says "Nope".

If I had $8000, I could conceivably persuade my banker to loan me another $20000 to buy a $28000 car, but even if I had $80000, I don't think my banker would loan me $200000 to buy a $280000 house. Not at my age and not on my salary.

So what is the real reason behind this pie-in-sky thinking ? Xerox can re-evaluate its cash flow, redo its financials six ways to Sunday, it doesn't and will never have the cash or the means to match HP's weight.

The whole affair is nonsense.

[LB45]

Re: Only in the business world

"The plan" is do set off alarm bells at HP. HP execs will panic, realize they are way bigger than Xerox and if anybody is buying out someone by golly it's going to be HP buying X.

HP gathers the usual suspect bankers to 'advise' and 'package' a buyout of X first. Declares victory, champagne all around.

Meanwhile the Xerox execs cash out all options, pat each other on the back for their brilliant plan going off without a hitch, then run like hell out the door to "pursue other interests".

Meanwhile 20K workers face the chop to pay for it all.

[Michael Wojcik]

Re: Only in the business world

even if I had $80000, I don't think my banker would loan me $200000 to buy a $280000 house. Not at my age and not on my salary.

Really? In the US (in the areas where you can find a house for $280000), you'd have banks falling over one another for that mortgage. Assuming you can make the payments, which at around $1220/month are low for most US homebuyers, and better than renting for most markets (by population).

Both of my houses happen to be significantly cheaper than that, but I've cleverly arranged to live in places where good homes are available at far under the national average.

[W.S.Gosset]

Re: Only in the business world

> An $8bn company starts talking about buying a $27bn company. Reality stares back and says "Nope". [...]

> The whole affair is nonsense.

That was my initial reaction too. But I grabbed quick snapshot of HP's debt + D/E history, D/E is currently around 1 and perhaps lower if ElReg's noted imminent changes are not embedded in that number, which puts the post-takeover D/E between 4 & 5. (ie, the company is ~80-85% debt, the shareholders only have 15-20% of the company.)

Which from a real-world risk perspective is sphincter-puckering, but in the surreal world of top-end privileged-sector US companies is not all that uncommon.

As an example, HP itself had a D/E ratio over 7 in the last decade (~90% debt)

.

Also note that HP apparently already has reasonably solid confidence of raising the finance without even needing to resort to bond issue.

[LeahroyNake]

Bottom of the barrel

Samsung copiers are to be quite honest, crap. They are at the very low end in build quality and usability and are toys in comparison to machines from Canon, Ricoh and KM etc.

Why HP bought them is beyond my comprehension as they used to produce good quality printers. Adding a scanner on top really should have been easy for them with the amount of cash they had for R&D. The fact that they make some of the best large format CAD MFD eg. Designjet T2600dr that is really quite good and the UI is Useable with no training for most of my customers.

Xerox buying them out, maybe it would make more sense the other way round.

[fidodogbreath]

Re: Bottom of the barrel

Why HP bought [Samsung copiers] is beyond my comprehension as they used to produce good quality printers.

Probably figured they'd pay for it by quintupling the price of the Samsung consumables and service contracts.

[Anonymous Coward]

Re: Bottom of the barrel

HP laser printers and MFP's based off the same have historically used Canon engines. I'd expect that the HP Canon licensing deal didn't include or allow the use of Canon engines in HP branded copiers, hence HP inc thinking buying Samsung's laser business was a good thing to get into the copier market.

Yes we have a few new HP inc copiers at work using the HP/Samsung engine and they are crap vs the slightly older Canon copiers we also have. Sadly our provider has been borged by HP so shortly the Canon units have to go back to be replaced at no additional cost^tm with HP units.

[Doctor Syntax]

Re: Bottom of the barrel

"they used to produce good quality printers. Adding a scanner on top really should have been easy for them"

They did that. My HP all-in-one works just fine. And keeps on working. Unfortunately for HP it means I'll never need to buy another. They don't like that so the later ones are cheaper to build and you will need to buy another. That seems to be the thinking. It back-fired. I wanted to buy a colour one. Having seen more recent HP printers I didn't buy my colour one from them. Maybe it does work overall because there do seem to be places where nobody ever got fired for buying from HP.

[Henry Wertz 1]

Crazy

Crazy that a company could even consider buying out one that is over 3x their size. Honestly.

[Steve 114]

Re: Crazy

The words 'reverse takeover' spring to mind. Then MBA suits will aim to merge compatible SBUs and after months of disruptive shakedown, demerge or sell the inflated components. Not saying it's sensible, but it's how they think.

[The Oncoming Scorn]

Carry On Up The Khyber

Rank Stupidity!

Icon - Closest I could find to Kenneth Williams

[The Oncoming Scorn]

Re: Carry On Up The Khyber

Actually that icon is pretty good likeness of Charles Hawtrey\Pvt Widdle.

[Anonymous Coward]

Meanwhile Agilent* is doing quite well, should have held on to it HP.

Amusingly Agilent is an anagram of genital.

[Imhotep]

Upvoting the anagram. It's something everyone should know.

[Doctor Syntax]

Sounds like a lot of balls to me.

[W.S.Gosset]

Actually, it's just one.

[sanmigueelbeer]

A mouse eating a moose.

I am really keen to see how this pan out. HP staff are probably not happy. The tables have turned: Xerox might do what HP does best -- Squeeze or force staff (of the company HP just bought) to leave.

[James Anderson]

cows and geese

My cash cow doesn't give milk any more, so can I have some gold pieces to by a Golden Goose.

Please ignore the rumours that it doesn't lay eggs any more.

[Huw D]

"We have a record of taking action if there is a better path forward and will continue to act with deliberation, discipline and an eye towards what is in the best interest of all our shareholders."

The last word is never customers, is it?

[Anonymous Coward]

Nor employees.

[LeftyX]

"The company has tough challenges...

...on multiple fonts." FTFY

[Anonymous Coward]

Market Capitalisation

Market cap is a bunk statistic. It isn't clear why shareholders should expect anything like that in real money. Inflated shares for inflated shares possibly.

Share prices are typically driven by very small stock movements based on supply and demand. Suppose tomorrow somebody tried to unload 10% of Apple shares. What would happen? Total loss of confidence, price collapse. Suppose all the Apple shares in the world were up for sale at once, what sort of offers would they get?

The same applies to any company in a market with fairly short product cycles. It's why De Beers doesn't become very cash rich by trying to sell lots of diamonds, and why Porsche don't start knocking out 911s on the Golf production line.

Share for share is a cunning way of maintaining the inflated prices that allow Cxxes to claim big bonuses. A regulatory world in which government money actually had to change hands rather than shares might bring some sanity to the markets.

[Anonymous Coward]

Really, really plus ça change...

In 1991 Compaq introduced the PageMark printer, gathered 11% of the printer market in less than 2 years against the gorilla - HP. Unwilling to accept that percentage of market share (IBM was less than that, as was every other competitor to HP), they sold off the patents to a Japanese company that shall remain nameless. When the company visited the Compaq headquarters to finish the purchase, one Japanese engineer remarked that they had never seen such a simple paper handling scheme on a printer. The IP that was sold was truly unique. Moreover, the profits Compaq was making on the printers were substantial, and the Compaq customers buying them were incredibly loyal. MBA's - Bah!@@