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Coronavirus Crisis Brings Xerox-HP Takeover Battle to End

Zacks Equity Research

Xerox Holdings Corporation XRX announced yesterday that the company is terminating its tender offer to acquire HP Inc. HP, ending attempts to win a slate of HP board of directors.

A debt-heavy acquisition of a much larger company seems infeasible to Xerox amid coronavirus-led changes in business conditions.

“The current global health crisis and resulting macroeconomic and market turmoil caused by Covid-19 have created an environment that is not conducive to Xerox continuing to pursue an acquisition of HP Inc.,” Xerox noted yesterday.

Xerox’s decision must have come as relief for HP that has been repeatedly rejecting its offers citing inadequacy from a financial point of view.

Xerox has been considering the buyout since May 2019 and revealed its takeover offer in November with a $22 per share bid. HP had rejected the offer, stating that the deal undervalued the company and Xerox didn’t adequately explain its financial situation.

Xerox, this March, launched a second takeover attempt with a $24-a-share tender offer comprising $18.4 in cash and 0.149 Xerox shares for each HP share. HP stated that the offer “meaningfully undervalues HP and disproportionately benefits Xerox shareholders” and advised shareholders against tendering.

Xerox had expected the proposed combination to produce $2 billion in cost savings and more than $1 billion of additional revenue growth. A successful merger could have reshaped the printing industry, creating a solid portfolio capable of catering to a wide range of printing needs, owing to the limited overlap between Xerox and HP.

Notably, Xerox and HP shares have been down 42.5% and 12%, respectively, over the past year.

Zacks Rank & Key Recommendations

 Xerox currently carries a Zacks Rank #3 (Hold).

HP as well as Apple AAPL and Akamai AKAM are better-ranked technology picks as all three stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for HP, Apple and Akamai is 2%, 10.7% and 12%, respectively.

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