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Is HP gearing up to acquire Xerox? – Andy McCourt

It’s no secret that, since the January 2018 stymied takeover offer for Xerox by Fujifilm Holdings,  relations between the two ‘joint venture’ partners for 56 years, have soured.

FX Xerox
Bethrothed but not married - The vexed Fujifilm-Xerox deal, now with added sauce from HP?

 

While Fujifilm Holdings continues to stoically pursue a fulfillment of the original offer, valued at USD$6.1 billion; Xerox, under CEO John Visentin, has re-organised as a holding company – giving it the flexibility to divest parts or all of its global empire and deliver handsome returns to shareholders including the dissidents Carl Icahn and Darwin Deason who, with approximately 15% of Xerox stock between them, initiated the revolt against the Fujifilm deal.

Fujifilm is continuing with its $1 billion lawsuit over the failed deal, which resulted in the exits of former CEO Jeff Jacobson (now CEO of EFI) and his board – to be replaced by Icahn-Deason friendly Visentin and a new board. This Damoclean sword still hangs over Xerox as Fujifilm claims that the new board ‘walked away’ from a deal that was already agreed to under Jacobson.

However, as we have seen in Trump-era America, rules and conventions are up for challenge and the old adage ‘a deal is a deal’ no longer applies.

Few could rationally argue that Fujifilm saved Xerox from bankruptcy in 2000 when it injected around USD$1.85 billion into the company in return for its China sales operation and an extra 25% of Fuji Xerox Asia-Pacific; taking its share to 75% and diminishing Xerox’s to 25%. Without that, Xerox would have ‘had a Kodak moment’ and gone under. Wall Street, it appears has a short memory for such white-knight salvations.

With the Fuji Xerox j.v. running to 2021 and the Japanese giant supplying the bulk of Xerox’s office printers and top-line production printers such as the superlative Iridesse, the damage of a fall-out between the two partners would appear potentially fatal – with Xerox losing its grip on the fast growing Asian  markets and also most of its supply chain. Appearances, however, can be deceptive.

Enter the HP factor

In June this year, Xerox announced that it would be sourcing A4 and entry-level A3 office printers and MFPs from HP. Buying in entry level and DaaS (device as a service) printers from outside is not new for Xerox – HP acquired Samsung printers last year and inherited OEM deals - but the timing of the move is intriguing.

Respected industry analyst firm Wirth Consulting had this to say: While Fujifilm’s (President) Komori may still have Xerox on his mind, the tension between the two companies, the $1 billion lawsuit, and Carl Ichan’s demand for $40 per Xerox share appear to make an acquisition highly unlikely. Anything is possible, but we still see the joining together of two iconic American companies, Xerox and HP, as a good possibility.”

Why would this be a good fit? First, let’s look at the two companies, Xerox and HP:

Xerox, while strong in some areas and with good recurring revenues, has not just missed the boat on the two fastest growing areas of print – it’s missed the entire flotilla! I refer to the digital production of labels, packaging and signage.

  • Xerox has no digital label offering of its own and has stood on the sidelines as HP, Xeikon and now Konica Minolta have reaped the benefits of global demand for short-run label printing and converting lines powered by digital.
  • Xerox has made several half-baked attempts to get into wide format and signage but has no cohesive offering – perhaps a legacy of it’s toner-based bias whereas digital wide format is all inkjet (despite that Xerox pioneered electrophotography in wide format in the 1990s).
  • Xerox also has no cohesive offerings in the packaging sector apart from the ability for iGens to make folding cartons. HP walks all over them with the HP Indigo models and PageWide inkjet devices for pre-print liners and corrugated.

And, looking at HP:

  • HP is massively strong in digital production colour print, especially labels with HP Indigos.
  • HP is not particularly strong on office and ‘copier-based’ production print which produces nice recurring revenues with managed systems – this is Xerox’s forte, with excellent channels. Despite repeated efforts, HP has only managed to glean around 10% of the ‘copier’ type of businesses, dominated by Xerox, Konica Minolta, Canon, Ricoh and others.
  • HP and Xerox are both American companies with commonality of culture, bourse listings and language. Xerox is full of former HP execs in senior management.

As Kathleen Wirth of Wirth Consulting notes: “It’s hard to think of many companies that have been through the storms that Xerox has been through, and its best bet may well be with HP. Along those lines, Xerox has hired several key former HP executives, and Icahn and Darwin have stated that they would welcome partnering with a “PC company,” specifically mentioning HP (also mentioning Apple and Lenovo, the likelihood of which seems very small).  (HP is also said to have inquired about a purchase in January 2018.) ”

As time and court hearings go on, the likelihood of a resurrection of the original Fujifilm-Xerox takeover seems less and less likely. The two parties just don’t get on anymore. Yes, they still trade with each other and there is a degree of inter-dependence; but come 2021, a renewal of the longest-running j.v. in USA-Japan business history is doubtful. Maybe a higher offer from Fujifilm could appease the Icahn-Deason camp but it could also trigger a bidding war - again creating a win-win situation for Xerox shareholders.

There’s no crystal ball of certainty but an HP-Xerox, or parts of Xerox, unification ticks a lot of boxes for both organisations.