HP rallies the troops against a hostile takeover

HP, the PC and printer maker, is trying to fend off a hostile bid from its smaller rival Xerox. An eventual deal still looks likely.

HP is attempting to “rally” investors against a $35bn hostile bid from its rival Xerox, says Nico Grant on Bloomberg. The world’s second-largest personal computer maker says it will return a large amount of money to shareholders, primarily through buybacks, which will be increased from $5bn to $15bn over the next three years. The buybacks will be funded by a combination of cash on hand and more debt. To free up additional cash, HP will increase the amount of money it aims to save through its cost-cutting programme to $1.2bn by 2022.

The planned $15bn in buybacks is certainly an “aggressive” move, since it represents more than HP has spent on them over the last seven years, says Dan Gallagher in The Wall Street Journal. They are also clearly meant to “bolster HP’s case for staying independent”, in the face of the Xerox bid. Still, the latest results certainly showed why the company needed to “sweeten the pot”. While several “one-time items” helped per-share earnings beat Wall Street’s forecasts, revenue across HP’s businesses was “merely in line” with expectations. Worse, sales in the key print-supply business fell 7% year on year, the fifth consecutive quarterly decline.

The share repurchases aren’t the only measures HP is taking to stop a hostile takeover, says Eric Savitz in Barron’s. Last week it announced a “preferred-share purchase-rights plan”, known as a “poison pill” manoeuvre. This “old-school anti-takeover measure” means that if any shareholder buys more than 20% of the company, the other shareholders will be able to buy additional shares at a discount. While this won’t stop a takeover, it does mean that any acquirer will be diluted and have to pay more.

A merger makes sense 

Both the buybacks and the poison-pill measure will make it harder for Xerox to take over HP, says John Foley on Breakingviews. However, it would be a pity if this completely scuppered any deal, because the case for a merger “remains compelling”, especially since Xerox reckons that the combined cost savings “could hit $2bn a year”. While some of this involves double-counting the cuts that HP has just announced, it would still add $8bn worth of extra value. As a result, HP should use the leverage that the defensive measures give it to “negotiate from a better position” and engage in “friendlier” merger talks.

An eventual deal may be likelier than you think, says the Financial Times. After all, while HP’s buyback plan may be designed to “make it difficult” for Xerox to fund a takeover of HP, HP has pointedly refused to rule out a deal of a “different kind” between the two competitors, HP’s CEO Enrique Lores stating that his company is  “willing to engage” with Xerox, although any deal would have to be carried out “under different terms” from those originally proposed and would probably involve HP buying its smaller rival, rather than vice versa.

Recommended

I wish I knew what moral hazard was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what moral hazard was, but I’m too embarrassed to ask

The term “moral hazard” comes from the insurance industry in the 18th century. But what does it mean today?
28 Sep 2021
Has passive investing created a stockmarket bubble?
Sponsored

Has passive investing created a stockmarket bubble?

Over the past two decades, investors have been switching from buying actively managed investment funds to buying passive funds that simply track a mar…
28 Sep 2021
Why are people panicking about fuel shortages?
UK Economy

Why are people panicking about fuel shortages?

With huge queues forming at petrol stations around the country, Saloni Sardana looks at the reasons behind the fuel shortage and asks how long it's l…
28 Sep 2021
Why investors should beware of corporate waffle
Investment strategy

Why investors should beware of corporate waffle

When top executives try to retreat behind impenetrable jargon, investors should be very sceptical, says John Stepek.
28 Sep 2021

Most Popular

A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021