Investors were surprised to hear that Xerox (NYSE: XRX) might be considering a multi-billion acquisition of Hewlett-Packard, otherwise known as HP (NYSE: HPQ). Both companies have been slowing down and pursuing cost-cutting strategies to improve their profit margins. However, should this deal potentially come through, it could definitely do a lot to revitalize both of these companies.
In an exclusive report from The Wall Street Journal, Xerox is considering making a cash-and-stock offer for HP, whose market cap currently sits at $27 billion. Taking into consideration a reasonable premium, Xerox could easily offer around $35 billion to buy out HP. Although there’s no guarantee that the company will follow through with this potential plan, Xerox’s board did discuss the possibility in a meeting on Tuesday.
Considering the fact that HP is at least three times larger than Xerox, the copier maker would face an uphill battle to try and pull this plan off. Both companies are currently trying to cut down on expenses and streamline their operations, and a big merger could offer the possibility to further reduce expenses by eliminating redundant business segments. Anonymous sources that reported to The Journal ended up saying that a merger between the two companies can create at least $2 billion in additional cost savings.
HP announced back in October that it would be implementing a restructuring plan which, among other things, which lay off 9,000 employees – roughly 16% of its workforce to save $1 billion in annual expenses. One of the company’s top issues is that customers are buying ink cartridges elsewhere, a product that used to be a major cash cow for HP considering that it would sell its printers at a lower-profit margin knowing that cartridge sales would make up for this.
However, HP is now considering designing new, cheaper printers that only use HP cartridges, or at least charging more for their regular prints. The company has also invested significantly in the 3D printing world, although it’s uncertain where and how the company will find major revenues from this area as of yet.
In response to the news, shares of Xerox increased by 4.9% while HP rose by 2.2%. Xerox has been a major winner in 2019, as the company’s stock has gone up over 84% so far in the past year. On the other hand, HP has been tumbling over the past several months, losing around 25% of its market value since the beginning of the year.
Xerox Company Profile
Xerox Holdings Corp is an original equipment manufacturing and software company. Xerox operates in one segment–design, development and sale of printing technology and related solutions–while deriving 60% of its revenue from North America, and 40% from international markets.
The company is an OEM of multifunction printers, or MFPs (printers that can print, copy and scan), focusing on large enterprise markets. Apart from equipment, the company provides post sales services like managed print services–a service that helps to bring smart servicing and efficiencies to how employers use their print/copy equipment. Xerox is attempting to enter new markets like digital print packaging solutions and printed electronics. – Warrior Trading News
