Xerox Has ‘Flexibility’ Around $24 Billion Loan Promises For HP Bid, CFO Says

“We believe our arrangements with those financial institutions allow us flexibility if need be,” Xerox CFO Bill Osbourn Jr. said of loan guarantees it won to finance a takeover of HP.


Xerox CEO John Visentin said the print industry is “decades overdue” for consolidation and the “first mover” will have a significant advantage, as he announced this morning that the company’s 2019 revenue was down 6.2 percent from the previous year.

Visentin continued to advocate for a combined Hewlett Packard and Xerox, which he said has won support from HP shareholders and would result in $2 billion in cost synergies between the two companies.

“A combined company would be both more profitable and better positioned to diversify into higher growth markets,” he told investors during Tuesday morning’s earnings call. “Any restructuring that either company undertakes in the interim is simply incremental and does not diminish the scope or scale of this opportunity for both HP shareholders and Xerox. We receive positive feedback from HP shareholders, we spoke to. They immediately appreciate the industrial logic and believe in the value we can create.”

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Meanwhile, in response to an analyst question about whether Xerox could get more than the $24 billion in financing that it has secured to buy HP, Xerox CFO Bill Osbourn Jr. said they believe they have “flexibility” around that number.

“We believe our arrangements with those financial institutions allow us flexibility if need be,” Osbourn said.

Visentin added that the banks -- Citigroup Inc., Mizuho Financial Group and Bank Of America – worked through the numbers with Xerox before agreeing to the loan.

“You can imagine the amount of analysis that the banks went through before they agreed to give us $24 billion in financing, the due diligence they had to go through with us to give them confidence,” he said.

Xerox’s fourth quarter (ended Dec. 31) revenue was $2.49 billion, down $54 million or 2.2 percent from one year earlier. For the full year, Xerox posted $9.66 billion, off $596 million or nearly 7 percent from the prior year. Earnings per share were sharply up, coming in at $2.78 versus last year’s EPS of $1.16.

For 2020, Xerox expects to see revenue decline by 4.4 percent and GAAP EPS from continuing operations in the range of $2.80 to $2.90.

Last week Xerox pushed forward with its takeover attempt of HP and revealed its slate of independent board candidates that it will put forward during HP’s summer shareholder meeting, hoping shareholders agree with Xerox’s desire to bring the two companies together.

[RELATED: Here Are The 11 HP Board Hopefuls That Xerox Has Nominated]

HP’s current board rejected Xerox’s $22-per-share offer last November, saying it undervalued the company.

“The printing industry is decades overdue for consolidation and the first mover will have a significant advantage,” Visentin told investors Tuesday morning. “We recruited a slate of highly qualified independent director candidates for the election to the HP Board. We are pressing ahead with our pursuit of this acquisition and are already working key elements of an integration plan so that we are well positioned to execute quickly when and if successful.”

According to Morgan Stanley analyst Katy Huberty, many HP shareholders actually see significant risks in merging with Xerox, including the company's declining revenue. Xerox appears to be "unlikely to return to revenue growth" by calendar year 2021, Huberty noted.

"Our bottom up analysis of Xerox's end-markets suggests that a near-term return to growth is unlikely, as growth investments in new and adjacent markets are unlikely to offset market declines and share losses in Xerox's core end markets," she wrote.