Xerox Gets Hostile
There’s Big Tech, and then there’s Small Tech. There’s Amazon and Apple, and then there’s Xerox and Hewlett-Packard (HP). At the bottom of the pile, long-term investors in D-list tech firms (Carl Icahn included) experience only the worst of the cyclical consumer industry.
For these two dumpster fires specifically, it’s all or nothing. They either find a way to keep the meter topped up and have a real go at forcing a turnaround of their copier businesses, or they cut their losses, liquidate, and bailout whatever shareholders remain (Carl Icahn included).
Not wanting to give up that easy, investors in HP have been desperate for their company to accept Xerox’s offer of a potentially life-saving merger. However, HP’s management is resisting, believing it’s above an alliance with the smaller company.
This has all led to one of the rarest ‘special situation’ plays that investors will encounter this year. HP is trying to kill a hostile takeover attempt from Xerox, something normally celebrated in markets. However, in this case, Hewlett-Packard investors are vying for their own company to fail in its defense efforts. They want this merger to happen!
The drama of inner mutiny and boardroom politics has gotten so hostile that it’s now downright militant, with a few strategies left for HP to save its independence.
The Pac-Man defense: HP buys Xerox to stop Xerox buying HP.
Theshark-repellent: HP merges with its largest shareholder to avoid a merger with Xerox.
White squire: HP offers itself up for takeover by another company… except for Xerox!
Greenmail: Xerox buys lots of HP shares, but HP repurchases them all at a very, very high price.
Poison pill: Xerox buys lots of HP shares, but HP then sells loads more to its good shareholders to dilute the ownership stake Xerox is trying to build.
The standstill agreement: HP pays for a time-out from Xerox’s hostility.
Crown jewel: HP lets Xerox buy one valuable asset at a low price, but one valuable asset only.
Scorched earth: HP takes out a bunch of debt and hopes that scares Xerox off.
Just say “no”: If HP doesn’t want tea, HP doesn’t have to have to drink tea!
Unfortunately for some, Xerox isn’t taking “no” for an answer. The copier company has nominated eleven new directors to replace HP’s board entirely, and current shareholders seem more than willing to approve that from the inside.
Keep these market developments tabbed. News of a breakthrough on Xerox’s part could unlock meaningful upside, but it goes both ways. When the ground shifts next, we’ll fill you in!
