HP Inc., one of the world’s largest computer companies, confirmed that it was considering an acquisition proposal from competitor Xerox Holdings Corp. HP is three times the size of Xerox. Nonetheless, Xerox has reportedly secured backing from Citigroup Inc. to help fund the possible takeover of HP. The deal is expected to generate about $2 billion in cost savings for the combined entity, according to The Wall Street Journal.
While Xerox will have to assume debt to complete the takeover, it reportedly expects a payout of $2.3 billion from the completion of the sale of a 25 percent stake in Fuji Xerox to FujiFilm, also announced this week. Fuji Xerox will become a whole owned subsidiary of Japan’s FujiFilm Holdings Corp. FujiFilm also agreed to drop a lawsuit against Xerox filed last year that claimed damages when Xerox backed out of sale agreement.
Xerox’s offer to HP would unite two tech giants, both of whom have struggled as worldwide demand for printed material ebbs. The acquisition proposal has been linked to activist investor Carl Icahn who owns a 10.6 percent stake in Xerox and was successful in remaking the Xerox board after a 2017 proxy fight. The president of Icahn Enterprises, Keith Cozza, became chair of Xerox as part of the board makeover.
Implications for Boards
As boards contend with a more active M&A environment, a strategic focus on growth is essential. In the case of HP and Xerox, both boards face the question of whether their combination would lead to long-term growth and a return for shareholders. A survey conducted of NACD members by NACD and Deloitte found that the integration phase of M&A is where greater involvement from the board can serve as an asset to their organization Boards confronting similar strategic questions should consider whether a special committee is needed to guide and serve as the point of contact during the M&A process. The board should also weigh whether the right leadership is in place. HP CEO Enrique Lores had only been on the job for five days when Xerox made its proposal.
Key Questions Directors Should Ask
The 2019 Blue Ribbon Commission report Fit for the Future: An Urgent Imperative for Board Leadership recommends that boards more actively and deeply engage in challenging management’s thinking. NACD’s M&A Oversight Resource Center provides research and tools including a report from NACD’s Director Essentials series on Strengthening Oversight of M&A. Additionally, Deloitte’s report, The State of the Deal: M&A Trends 2019, provides a short-term outlook for M&A.