HP boosts share buybacks, cost cuts in face of Xerox bid

February 25, 2020 09:44
HP is trying to bolster investor support as it seeks to defend against a takeover offer from Xerox. Photo: Reuters

HP announced on Monday that it will step up efforts to slash costs and buy back stock, making the moves as it seeks investor support to defend against a US$35 billion takeover offer from Xerox, Reuters reports.

The company said it will increase its share buyback program from US$5 billion, announced last October, to US$15 billion. It added that it is targeting $16 billion of capital to be returned to shareholders over the next three years, representing about half of its market capitalization.

The announcement came after Xerox raised its cash-and-stock bid for HP earlier this month by US$2 to $24 per share, ahead of a tender offer it plans to launch in early March.

The rival printer maker is also asking HP shareholders to replace HP’s board directors with Xerox’s nominees at the company’s annual shareholder meeting later this year.

On Monday, HP reported US$14.6 billion in fourth-quarter revenue, slightly lower from last year, as growth in its personal computer business offset the continuous decline of the printing business.

Adjusted earnings per share came in at 65 cents for the fourth quarter, beating analysts’ estimate of 54 cents, according to Refinitiv data.

HP said it expects about US$650 million of cost savings to flow through its projected operating profit growth.

It had previously announced a cost reduction program that it expects to result in US$1.2 billion of gross, annualized run-rate structural cost savings in fiscal 2022, with additional ongoing productivity improvements of at least US$1 billion.

HP raised its previous estimate of adjusted earnings per share to a range of US$2.33 to US$2.43 for fiscal 2020, and said it would deliver US$3.25-3.65 in adjusted earnings by 2022.

Calling Xerox’s bid “flawed and irresponsible”, HP executives told Reuters there were many hurdles in a potential tie-up.

HP said Xerox’s bid would burden the company with too much debt, and that Xerox overstated the expected synergies to be generated by cost reductions and productivity gains. However, it said it would reach out to Xerox to explore if a combination was worth pursuing.

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