HP Cites Debt Concerns in Rejection Letter to Xerox CEO

Carl Icahn and Xerox will have to do more to convince HP to accept a takeover bid.

On Sunday, HP’s board of directors rejected an unsolicited $22 per share offer for the company. The firm questioned the required debt levels to reach a deal and Xerox’s projected revenue decline.

“In reaching this determination, the Board also considered the highly conditional and uncertain nature of the proposal, including the potential impact of outsized debt levels on the combined company’s stock,” the HP board wrote to Xerox CEO John Visentin.

Carl Icahn and Xerox Lose Round One

Carl Icahn and Xerox made headlines last week. The activist investor bought a $1.2 billion stake (4.24%) in HP. Icahn, who owns 10.6% of Xerox, soon pushed for a merger between the two firms. Icahn argues that both companies would see large savings. In addition, he foresees a strong portfolio of printer offerings from a deal.

Both HP’s CEO Enrique Lores and chairman Chip Bergh said they were “open to exploring whether there is value” for “HP shareholders through a potential combination with Xerox.”

But the board suggested that more analysis must occur before a deal.

“In addition, we believe it is critical to engage in a rigorous analysis of the achievable synergies from a potential combination,” the board wrote. “With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction.”

The board concluded that the $33.5 billion offer isn’t in the best interest of shareholders.

Icahn will likely continue to push for a deal given his history of activist pressure.

“I think a combination is a no-brainer,” Icahn told the Wall Street Journal last week. “I’ve found over the years that these types of companies that are in shrinking industries tend to decline much more slowly than many market participants may predict, while continuing to generate substantial amounts of cash.”