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HP Partners Hoping To Avoid Xerox Proxy Fight

With Xerox’s CEO threatening to take his company’s takeover offer directly to HP shareholders, HP partners worry that the battle would become a distraction for both businesses.

Following the rejection of Xerox's takeover bid by HP Inc.'s board of directors on Sunday, solution provider Harry Zarek said his main hope was that HP and Xerox would avoid a shareholder dispute.

But on Thursday, Xerox said it is prepared for a proxy fight unless HP's leadership reconsiders the offer in the next few days.

[Related: HP Vs. Xerox: 4 Key Financial Metrics In The Takeover Fight]

Xerox is willing to take its proposal "directly to your shareholders,” Xerox CEO John Visentin said in a letter to HP's board of directors—predicting the offer would receive "overwhelming support" from HP shareholders. Notably, activist investor Carl Icahn has sizable ownership stakes in both HP and Xerox.

HP has not responded to a request for comment on the Visentin letter.

Xerox's offer of $22 a share for HP represents a roughly 20 percent premium above HP's closing stock price on Nov. 5, just prior to the first reports of the takeover bid. Combining Xerox and HP would bring together the leaders in printer and copier devices at a time when the industry is waning.

However, HP partners who have spoken with CRN have sharply criticized Xerox's proposed deal, raising issues ranging from Xerox's inexperience in the PC market to differences in the two companies' channel approaches.

HP is also the significantly larger company of the two. HP's market capitalization as of Wednesday was $29.16 billion, based on the latest disclosure of outstanding shares in the company, while Xerox's market cap was $8.28 billion.

Zarek said he'd been hoping the Xerox takeover bid for HP—and particularly the involvement of Icahn—would not lead to a shareholder dispute that "distracts both businesses."

"Let each business continue to implement their business plans," said Zarek, CEO of Compugen, No. 57 on CRN's 2019 Solution Provider 500. Richmond Hill, Ontario-based Compugen in March was named HP Inc. Personal Systems Partner of the Year for Canada.

With Xerox's increasingly aggressive efforts to acquire HP, "there are a lot of areas where it certainly creates confusion and issues," said an executive at a partner of HP who asked to not be identified.

Ultimately, having Xerox acquire HP "makes no sense from the channel or PC business perspective," the solution provider executive said Thursday.

HP's personal systems business is nearly twice the size of its printing business, and the company is the second-largest PC maker worldwide and the largest in the U.S. HP generated $28.27 billion in personal systems revenue during its latest three quarters, up 2.4 percent year over year.

"I have a general concern when I'm thinking about Xerox running a PC company," said Juan Fernandez, vice president of managed IT services at Oklahoma City, Okla.-based ImageNet Consulting, in a previous interview with CRN. "For personal systems, I just can't see how that would benefit."

Zarek previously told CRN that the Xerox takeover bid "has only negative outcomes for HP’s channel partners."

"Xerox has historically been a direct sales organization and is still in the early stages of understanding how the channel model works," Zarek said. “They have a large direct sales organization focused on enterprise accounts and still deals with them directly and only selectively permits channel companies to participate. They have a direct agent model which covers the SMB market.”

"Contrast that with HP as a mature, channel-focused business,” Zarek said. “There is a big cultural mismatch around Xerox being able to understand how today’s IT channel model works."

On Sunday, HP's board of directors unanimously rejected Xerox's takeover offer, but said the company is leaving open the possibility of a merger with Xerox under different terms.

In a letter to Visentin, HP's board said that it had reviewed the Xerox proposal and determined that it "significantly undervalues HP and is not in the best interests of HP shareholders."

“We have great confidence in our strategy and our ability to execute to continue driving sustainable long-term value at HP,” the company said.

In response, Visentin has given HP a deadline to agree to mutual “confirmatory due diligence to support a friendly combination by 5:00 p.m. EST on Monday, November 25, 2019.” After that, Visentin said Xerox will take the case directly to HP shareholders.

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