HP has raised questions about the long-term health of Xerox as the printer giant pushes towards a US$33.5 billion hostile buyout.
The global computer behemoth slammed the takeover effort by Xerox as “aggressive” and opportunistic”, flagging the latter’s declining revenue as a cause for concern.
The letter comes just days after Xerox threatened to make its bid for the personal computer maker hostile if did not agree to a "friendly" discussion and open its books before 25 November.
HP had earlier claimed Xerox's offer of US$22 per share undervalued the company, and that it was open to exploring its own bid for the US printer maker.
On 24 November, an open letter from HP CEO Enrique Lores and chairman Chip Bergh attacked Xerox for pursuing a public, “hostile” approach following a breakdown of private talks between the two parties in August.
“It is clear in your aggressive words and actions that Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information,” the duo wrote.
Addressed to Xerox vice-chairman and CEO John Visentin, raised concerns about the printer company’s projected six per cent revenue decline in fiscal 2019, claiming it had already fallen from $10.2 billion to $9.2 billion since June 2018.
In addition, HP argued Xerox’s decline in customer total contract value (TCV) was worrying, claiming the TCV of enterprise signings (including renewals) in 2018 was down 13.9 per cent in constant currency and the churn for 2018 was 18 per cent before Xerox stopped providing the data publicly.
HP also questioned Xerox’s claims it could support “achievable synergies” between the two companies having argued the cost-savings were already being made independently.
“We remain prepared to study the potential value of a combination and to work quickly to learn more about your business trajectory,” the letter added. “However, there are significant concerns about both the near-term health and long-term viability of your business that have a significant impact on Xerox's value. The question of whether there is a path to turn around your business is a threshold issue.”
Xerox made the offer to HP, a company more than three times its size, on 5 November after it resolved a dispute with its joint venture partner Fujifilm Holdings that represented billions of dollars in potential liabilities.
This was also highlighted as a cause for concern by HP, which argued Xerox “essentially mortgaged its future for a short-term cash infusion”.
“We fear that the exit has left a sizeable strategic hole in Xerox's portfolio,” the letter claimed. “In addition, we have concerns as to the state of Xerox's technology resources, research and development pipeline, future product programs, and supply continuity and capability.
"Finally, we note that Xerox will have to get access to the fastest-growing Asia Pacific region.”