5 Things To Know About A Potential Xerox-HP Deal: ‘The Copier King And The Printer King Combined’

For an industry that is in desperate need of a paradigm shift, nearly every corner of the market welcomed a rumored deal that would see surging Xerox acquire struggling HP.

A Deal Designed To Print Cash

Rumors of a possible Hewlett Packard and Xerox deal has lit up every corner of the printer copier market, with many saying the tie-up could pave the way to a combined enterprise that is not only bigger, but smarter in its approach to the declining industry.

The news comes as Xerox celebrates a year of steady growth under the leadership of Carl Icahn’s hand-picked board and CEO.

With a market cap of $30 billion, HP is more than three times the size of Xerox’s $7.9 billion. While the American copier icon generates roughly $10 billion in annual revenue, compared to HP's $58 billion, Martin Wolf, of Scottsdale, Ariz.-based martinwolf, a leading M&A advisory, said there have been previous cases where “the minnow swallows the whale.”

“While these types of deals are rare, they have happened,” Wolf said.

Or as another high-ranking executive put it, “If anyone can pull it off it’s Icahn.”

The Deal As Speculated

Xerox, according to the Wall Street Journal -- would make a cash and stock offer to buy HP Inc. – currently valued at $27 billion -- in a deal that could see $2 billion in synergies and would instantly leapfrog Xerox into position as the largest printer-copier manufacturer in the world.

Xerox reportedly “received an informal funding commitment from a major bank, known as a ‘highly confident letter,’” the Journal also reported.

Xerox also just landed $2.3 billion in a potential deal in which Fujifilm hopes to buy out Xerox ownership in the 57-year-old joint venture Fuji Xerox, and Xerox International Partners, pending regulatory approval. As a part of that proposed transaction, Fujifilm is dropping its $1 billion lawsuit against Xerox for backing out of the 2018 merger.

Analyst: ‘The Minnow Swallows The Whale’?

Wolf said while it’s possible for Xerox to acquire HP, history shows the deal could just as easily flip, with HP buying Xerox.

“HP is much larger than Xerox, which makes this rumored deal more interesting. While these types of deals are rare, they have happened. While nobody has seen the letter or what the cash-and-stock split would be for the HP-Xerox deal, it’s likely Xerox would be the controlling shareholder and replace HP’s management team. It’s also not uncommon in cases like this that the larger company instead attempts to acquire the smaller company. If that were the case, it would more than likely be the Xerox management team that would be replaced.

Xerox Partners ‘Excited’ To Get Hands On HP

Josh Justice, owner of Xerox Accredited Master Elite MPS Partner Just Tech, a Xerox reseller in La Plata, Md., told CRN he has been talking to partners all morning who are excited about the potential deal.

“It’s the copier king and the printer king combined. That’s a great thing. I can tell you in all of my accounts that have multifunction copiers and printers. If they don’t have Xerox printers, its most likely going to be HP printers. I see tremendous opportunity as a channel partner. I can tell you, partners have been calling and emailing all morning with excitement. Everyone is really excited.

Everyone knows HP is the printer king. It opens up the opportunity for partners to also offer HP printers, and computers as well and that’s something we don’t have now.

It’s obvious that the Xerox channel program, especially in the A3 market, is far superior to anything that HP has. I am not concerned from that standpoint at all. Most of my clients who have HP printers, they’re buying them from the internet. They’re buying from retail stores. They’re buying directly from HP. Not from HP resellers. For all of us. We see big upside here.”

HP At A Crossroads

The company announced massive layoffs of 7,000 to 9,000 workers earlier in the month in the hopes of saving $1 billion by 2022. The company also said it is restructuring printer pricing to offset the decline in sales and combat losses from third party suppliers in that market.

Prior to being announced as HP’s CEO, Enrique Lores (pictured) told CRN those in the printer space are looking for ways to “combine our assets” as the overall market trends down.

“The print market is a market that is not going to be growing significantly, which really means that all of us have to look for opportunities to combine our assets in a more efficient way. And this is what this deal is really putting on the table. It enables us to sell Xerox a big part of our portfolio, and enables them to integrate it into their offering. So it helps both companies to grow, and helps both companies to be more efficient.”

Xerox Steadily Climbing

After years of declines in stock price and reputation, Xerox under CEO John Visentin (pictured) has been steadily rising. First, he killed the Fujifilm deal, offering up nothing to the Japanese company, even when threatened with a $1 billion lawsuit. He turned the Fuji Xerox partnership to his advantage, threatening not to renew the deal -- which would have resulted in Fuji Xerox losing its biggest customer. That ultimately resulted in Fujifilm taking full ownership of the joint venture, and paying Xerox more than $2 billion for a 25 percent stake that was only set to generate $100 million this year. He also kept the supply agreement intact, but now has flexibility to work with other providers in the region.

The CEO unveiled a three-year plan in February to return the company to growth. He has targeted inefficiency at the legacy copier icon with “Project Own It” that makes executives more accountable for their divisions, and he streamlined the corporate structure to make it more responsive to the market.

As one industry executive said, “These are smart people. These are people who see the world as it is and can meet it on its terms. They are head and shoulders above anyone who has run Xerox before. I don’t think anyone saw this HP deal coming, but if anyone can pull it off it’s Icahn.”

Xerox shares are up 84 percent this year, trading this morning $37.54, a price it has not approached since 2014.