HP plots $16bn stock buyback as Xerox takeover threat looms

The printing giant says it remains open to consolidation but insists Xerox continues to undervalue the firm

HP has announced a fresh multi-year strategic plan to grow revenue, as pressure mounts from Xerox over the pursued takeover between the two legacy printing giants.

The firm’s new capital return programme, which involves targeting the return of approximately $16 billion of stock, will hand this sum to HP shareholders over the next three years. This is around half of the firm’s current $32 billion market value. 

As part of wider HP’s ‘value creation’ programme, the board has also increased its current stock repurchase authorisation to $15 billion, from $5 billion.

This scheme has been launched in the midst of an ongoing saga between HP and Xerox, which has seen the two companies dance around a prospective merger for months. 

The company, which is valued significantly less than HP, has adopted a string of hostile tactics in recent weeks to attempt to progress their pursuit of a merger, including nominating directors to HP’s board and inviting shareholders to dine with the firm.

The company has also suggested it plans to launch a tender offer on 2 March, after HP’s board of directors unanimously rejected a previous $30 billion (£23 billion) offer in November. HP insists that Xerox has consistently undervalued the company, while Xerox recently accused the HP board of “adopting a poison pill” due to its continued rejection of the firm’s takeover offer.

The company’s ‘value creation’ programme aims to generate $4.7 billion profit in 2022, with up to $11.7 billion of free cash flow in 2020 through to 2022, as well as $1.2 billion in structural cost reductions in 2022.

“Our three-year financial targets reflect a company at the top of its game, combining the industry’s best innovation with disciplined cost management and aggressive capital returns to support a compelling investment in both the short and long term,” said HP’s president and CEO Enrique Lores.

“Our commitment to HP shareholders is unwavering and it’s abundantly clear the revised Xerox proposal meaningfully undervalues HP, creates significant risk and compromises the future of our company.”

Despite HP’s continued rejection of Xerox’s takeover attempts, it remains open to the idea of merging and has opened the door to future discussions.

These talks will explore whether there is a plan that represents ‘value’ for HP shareholders, and is ‘additive’ to HP’s strategic and financial plan that it just announced.

“HP believes there is merit in industry consolidation which is why it acquired Samsung Printing in 2017,” the company said.

“However, consolidation must benefit HP shareholders. The revised Xerox proposal, announced on February 10, 2020, meaningfully undervalues HP, creates significant risk, and compromises HP’s future.”

HP previously announced a billion-dollar restructure back in October 2019, before this saga began, which would involve between 7,000 and 9,000 employees from around the world losing their jobs. This was slated to be finalised by the end of the 2022 fiscal year.

The restructure will involve the company simplifying its operating model to become “a more digitally enabled company”, in addition to optimising its cost structure.

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