Why is Xerox interested in acquiring HP Inc?

It is true that Xerox Holdings Corporation has reportedly made an offer to acquire HP for an amount of $30 billion USD. A small fish wants to eat the big fish, now is this possible? The answer is why not?

HP Inc. once again has rejected the $22-a-share unsolicited takeover bid from Xerox Holdings as it deems it too low. Earlier this week, Xerox announced that it has lined up financing for the cash portion of its offer for the rival printer company, which consists of $17 a share and the remainder in Xerox shares. But HP (HPQ) on Wednesday said its board continues to find the Xerox bid inadequate.

The printing side of HP’s business seems to be what Xerox is most interested in; the combination of Xerox’s enterprise business and HP’s home business could be an appealing synergy for the two companies.

HP confirmed the offer from Xerox, saying that the two companies have had “conversation from time to time and that it has given the transaction consideration”.

The fact is Xerox has a valuation of about $8 billion, whereas the valuation of HP is about $27.3 billion. Both companies are into the business of computing. Xerox is still known for its enterprise copiers and printer business. On the other hand, HP has been a leader in home computers and its inkjet and consumer printers are a huge part of HP’s business.

The announcement was, of course, accompanied by a letter signed by Xerox CEO, John Visentin informing HP’s CEO Enrique Lores and Board Chair Chip Bergh that Xerox is indeed capable of securing the funds to finance its proposed acquisition.

The HP Board of Directors remain committed to advancing the best interests of all HP shareholders and to pursuing the most value-creating opportunities.

HP Inc meanwhile announced to cut as much as 16% of its workforce by the end of Fiscal Year 2022.

Citigroup has reportedly agreed to provide Xerox with the extra cash for the acquisition. Xerox thinks it could save the combined organizations about $2 billion a year (much of which would likely come from job cuts). Post combination, companies could achieve revenue growth of $1 billion to $1.5 billion over three years, and the combined company would have a free cash flow of more than $4 billion in the first year.

While rumours and speculations have centered around an HP-Xerox combination for some time, HP was expected to be the one doing the acquisition. Whether this will actually go through or not still remains a question.