HP Will Return $16 Billion to Investors to Parry Xerox Bid
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(Bloomberg) -- HP Inc. announced it will return $16 billion to shareholders, primarily through buybacks, and boost cost cuts, trying to rally investors against Xerox Holdings Corp. for control of the world’s second-largest personal computer maker.
HP will increase share repurchases to $15 billion from a $5 billion program announced in October. This will result in adjusted profit of $3.25 to $3.65 per share in fiscal 2022, which is about $1 more per share than analysts’ projections. HP executives also said they have engaged Xerox to discuss a potential combination on their terms, rather than succumbing to the printer maker’s hostile takeover effort.
The hardware giant raised its profit forecast for fiscal 2020 to as much as $2.43 a share, excluding some expenses, bolstered by the surge of share repurchases scheduled after the company’s annual meeting. For the current period, profit will be 49 cents a share to 53 cents a share, the Palo Alto, California-based company said Monday in a statement. The forecast fell short of Wall Street’s estimate of 54 cents, according to data compiled by Bloomberg.
HP executives said supply-chain disruptions related to the coronavirus outbreak will cost the company about 8 cents a share in adjusted profit in the current quarter. HP doesn’t expect the virus known as COVID-19 to affect performance in the second half of 2020.
The company also said it would raise its cost-cutting program to $1.2 billion by 2022. HP, which had 56,000 workers as of October, is in the midst of a restructuring that could result in as many as 9,000 employee dismissals.
HP’s shares gained about 4% in extended trading after closing at $22.10 in New York. The stock has declined about 7% in the past 12 months.
HP has repeatedly rejected Xerox’s effort to secure a $35 billion acquisition, saying it “significantly undervalues” the company. A deal would unify two icons of the technology industry that pioneered innovations consumers and office workers still use today, but have faded in an industry increasingly driven by software. Xerox has said it will launch a tender offer “on or around March 2” for HP shares valued at $24 in cash and stock. For each HP share, a holder would get $18.40 in cash and 0.149 Xerox shares. Norwalk, Connecticut-based Xerox has also started a proxy fight, nominating 11 candidates for HP’s board to help close the deal.
“We had a very strong first quarter, are putting in place a very aggressive plan and we are confident we can deliver on it, as we have in the past,” HP Chief Executive Officer Enrique Lores said in an interview. “We are open to explore a combination. Any combination needs to address three issues: it needs to reflect the right value exchange, needs to have the right capital structure and needs to have the right assessment of synergy.”