In the summer of 2020, with COVID-19 dominating headlines and businesses across America (and the world) settling into a remote work environment, Xerox CEO John Visentin announced that his company was suspending its pursuit of technology competitor HP. But a recent support suggests that the time may be right for HP to hammer out a deal to obtain Xerox.
Last week, Seeking Alpha—the crowd-sourced content service that addresses financial markets—suggested that with Norwalk, Connecticut-based Xerox’s stock trading in the high teens, it now looms as a potential takeover target, with Palo Alto, California-based HP poised as an ideal suitor. The report noted that Xerox has been hamstrung by the pandemic and supply chain issues, and an aggressive campaign of stock repurchasing has driven dividends down.
According to Seeking Alpha, Xerox spent $888 million on stock repurchases in 2021, yet its stock price stands eight points lower today—money that it felt could have been better spent on dividend payouts, reducing debt or increasing CAPEX.
Meanwhile, HP has not been as hard hit by the pandemic and offers a broader array of SOHO products, whereas Xerox’s offerings are mostly relegated to the traditional office, the report said. From January of 2020 to January 2022, the respective companies have virtually traded places in terms of stock prices, with HP currently at over $35 and Xerox just south of $19. Seeking Alpha believes a stock-for-stock deal that includes cash is feasible.
It’s certainly not the first time that the HP-buys-Xerox suggestion has been floated. Last July, Barron’s cited Berenstein analyst Toni Sacconaghi, who felt HP would be well served to acquire Xerox, given the former’s market value appreciation and the latter’s precipitous drop in market cap. In fact, HP CEO Enrique Lores told a Berenstein conference that the office printing sector was likely to experience consolidation and that it would be an aspect of “value creation activity” for HP.
Sacconaghi believed then that investors may not be keen on the idea, and in the six months following this investor note, the stock prices of both have continued in opposite directions.
“Many would view HP as doubling down on a secularly declining industry—with the risk being that HP’s multiple could decline and offset earnings accretion,” Barron’s quoted him as saying. But by the same token, “The upshot is that not only is [Xerox] significantly less expensive, but HP would be the combination’s lead architect today, and have full management and board control.”