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

We take a look at the financials that are playing a central role in Xerox's bid to acquire rival HP.

Metrics To Watch

Xerox leadership says it has an assurance of financing from Citi to pay for its proposed $33.5 billion takeover of HP Inc. And now, Xerox CEO John Visentin is threatening a proxy fight to push forward the merger of the two companies following the rejection of the Xerox proposal by HP's board on Sunday. But what Xerox hasn't mentioned is that it's most likely the strength of HP's balance sheet and free cash flows that is making the merger feasible.

An analysis of Xerox's offer published by Bloomberg columnist Alex Webb found that the debt that would be used to finance the acquisition would likely be secured against HP's free cash flow--while HP's relatively small amount of debt is another crucial piece. "HP’s low debt is the reason Xerox could think of a takeover to begin with," Webb wrote.

With Xerox not backing down from its takeover attempt, we took a look at some of the key financial differences between the businesses of HP Inc. and Xerox. What follows are four financial metrics that are at the center of the HP-Xerox takeover fight.


In Xerox's initial acquisition offer (which was disclosed by HP), Xerox said that "we will fund the cash component of our offer with a combination of cash on hand and new financing to support the transaction and the new combined company. We have been engaged in ongoing discussions with Citi on the transaction financing and they have provided to us a highly confident letter evidencing their certainty in arranging financing for the transaction." Xerox has proposed to pay $22 a share for HP--$17 per share in cash and the rest in Xerox stock.

As of Xerox's most recent quarter, ended Sept. 30, the company reported having $922 million in cash and cash equivalents. For HP's most recent quarter, ended July 31, the company disclosed having more than five times that amount--$4.92 billion in cash and cash equivalents.

Meanwhile, for Xerox's most recent three quarters, the company reported $895 million in net cash provided by operating activities. HP disclosed $4.07 billion in net cash provided by operating activities during its latest three quarters.


In determining that Xerox's offer "is not in the best interests of HP shareholders," HP's board said it considered issues "including the potential impact of outsized debt levels on the combined company’s stock."

While Xerox would need to secure significant debt financing for the acquisition of HP, the company already had $5.15 billion in total debt as of its latest quarter. By contrast, HP had a lower amount of total debt than Xerox—$5.06 billion as of its latest quarter—despite being the far larger company.


With huge businesses in both printers and PCs, HP generated a total of $58.72 billion in revenue during its latest four quarters. That represented an increase of 2.9 percent from the prior four-quarter period, when HP's total revenue was $57.04 billion.

For Xerox's latest four quarters, the company generated revenue of $9.23 billion—down 8 percent from the prior four quarters, when revenue reached $10.04 billion. Xerox's revenue decline "raises significant questions for us regarding the trajectory of your business and future prospects," HP's board said in its letter rejecting the Xerox takeover offer.

Stock Price and Market Cap

While HP is much larger than Xerox by market capitalization, the company's stock price and market cap have taken a hit over the past year amid issues such as declining printer supplies revenue. Prior to the news of the Xerox takeover bid, on Nov. 5, HP Inc. shares closed at $18.40. That was down from the closing price of $23 on Nov. 30, 2018 (when HP had updated its outstanding shares in its annual report).

The stock price drop combined with HP's share repurchases means that HP's market capitalization has declined significantly over the past year—to $27.23 billion as of Nov. 5 from $35.73 billion on Nov. 30 of last year. HP's market cap as of Wednesday was $29.16 billion, based on the latest disclosure of outstanding shares in the company.

Xerox's offer of $22 a share for HP represents a roughly 20 percent premium above HP's closing stock price on Nov. 5.

Xerox, meanwhile, has seen its share price and market capitalization increase over the past year. As of Oct. 31, prior to the takeover bid, Xerox shares closed at $33.93 and the company's market cap stood at $7.33 billion. That was up from a share price of $26.88 and market cap of $6.4 billion exactly one year earlier. As of Wednesday, Xerox's market cap had climbed to $8.28 billion, based on the latest disclosure of outstanding shares in the company.