HP has rejected a takeover bid from printer maker Xerox, despite pressure from billionaire investor Carl Ican to agree to a merger.
HP's board of directors said on Sunday they unanimously rejected an unwanted proposal from Xerox Holdings Corporation. They concluded that the $ 33.5 billion (£ 26 billion) bid underestimated HP and was not in the best interest of shareholders.
HP chief executive Enrique Lawrence and President Hip Berg told Xerox they are also worried the deal will leave the combined company with "increased debt levels". But they also said they recognize the "potential benefits" of the consolidation, pointing out that the two firms should continue to talk.
"We are open to exploring whether it is worth creating for HP shareholders through a potential combination with Xerox," wrote Lawrence and Berg. "However, as we previously discussed in relation to our previous diligence requirements, we have fundamental questions to be addressed in our Xerox valuation."
Xerox offered to pay $ 22 per share of HP, comprised of $ 17 cash plus $ 0.137 each. This was a 20% premium to HP's share price before news of the deal spread earlier this month.
Xerox is valued at $ 8.5 billion (£ 6.6 billion), so his interest in acquiring bigger rival PE was unexpected. Describing the proposal, Xerox chief Johnson Vicente indicated that it could deliver a $ 2 billion annual cost savings.
But Lawrence and Berg questioned the merits of the proposal in response to Xerox, saying: "We are seeing Xerox revenue drop from $ 10.2 billion to $ 9.2 billion (on a 12-month lag) from June 2018, which raises important questions for us regarding the trajectory of your business and future prospects. "
They are now seeking "essential engagement from managing Xerox and accessing Xerox workflow information" to see if a transaction is possible.
Ican has already concluded that the merger would make sense to investors. It has built a 4.24% stake in HP along with its 10.6% stake in Xerox.
The power of the Xerox is in printers for businesses, while HP has a stronger focus on the home market. Ican sees clear synergies between two one-off tech giants that fade away. "I think the combination is unwise," he told the Wall Street Journal last week.
"I have found over the years, these types of downsizing companies tend to fall much slower than many market participants can predict, and continue to generate significant amounts of money," he added.