On January 6th, Xerox announced that it has secured financing for its $33 billion takeover bid of its larger rival HP.

In November, Xerox made an unsolicited bid to buy its larger rival for $22 a share, including $17 in cash and the rest in Xerox stock. HP has repeatedly rejected the offer, saying that it “significantly undervalues” HP shares. HP previously expressed doubts about whether Xerox could finance the cash portion of the deal and also raised concerns about the considerable debt a combined company would need to support. 

In response to HP’s financing concerns, Xerox said Citigroup, Mizuho Financial Group, and Bank of America have agreed to lend Xerox up to $24 billion to finance the transaction.

 A spokesman for HP said the company had no immediate comment on the Xerox announcement.

Xerox management has been meeting with HP investors in an attempt to convince them to pressure HP’s board the proposed deal. Activist investor Carl Icahn, who owns more than 10% of Xerox and over 4% of HP, has backed the deal and described the possible combination as a “no-brainer.” Icahn also sits on the Xerox board. Some analysts and investors think it would make more sense financially for HP to flip the script and bid for Xerox.

In its announcement on January 6, Xerox included a letter to HP CEO Enrique Lores and Chairman Chip Bergh from Xerox CEO John Visentin. Here’s the text:

Dear Chip and Enrique, 

Over the last several weeks, we have engaged in constructive dialogue with many of your largest shareholders regarding the strategic benefits of our proposal to acquire HP. It remains clear to all of us that bringing our companies together would deliver substantial synergies and meaningfully enhanced cash flow that could, in turn, enable increased investments in innovation and greater returns to shareholders. 

But it also became clear from our dialogue with your shareholders that you and your advisors have been questioning our ability to raise the capital necessary to finance our proposal. We have always maintained that our proposal is not subject to a financing contingency, but in order to remove any doubt, we have obtained binding financing commitments (that are not subject to any due diligence condition) from Citi, Mizuho and Bank of America. 

My offer stands to meet with you in person, with or without your advisors, to begin negotiating this transaction. 

Sincerely,
John Visentin 

Source: Barron’s