All the moving parts of Xerox's proposed HP takeover
Tom Wright considers the factors at play in the possible merger of two tech titans
Xerox has confirmed its rumoured takeover bid for HP, bringing the possibility of a merger between two of the 20th century's most pioneering tech companies closer.
Speculation that Xerox was preparing a cash-plus-stock bid for HP surfaced earlier this week, with HP confirming an approach the following day.
Xerox has now spoken publicly about the potential acquisition for the first time.
The vendor said: "Our industry is long overdue for consolidation, and those who move first will have a distinct advantage.
"We look forward to expeditiously moving this process forward and creating additional value for shareholders."
Neither of the two vendors are strangers to business restructurings.
HP Inc was the subject of the largest corporate demerger in history when it span out its enterprise arm into Hewlett Packard Enterprise.
But more recently Xerox has been desperately seeking a way to change its own fortunes.
A proposed merger with Fuji Xerox, its joint venture with Fujifilm, was very publicly scuppered by activist investors Carl Icahn and Darwin Deason last year - a saga which saw Xerox's then-CEO bizarrely sacked not once but twice.
One analyst, speaking to CNBC yesterday, even suggested that Carl Icahn could have a stake in HP and be pushing a merger from both sides.
Xerox has now swung the other way and this week announced it would be dumping its 25 per cent stake in Fuji Xerox for $2.3bn (£1.8bn).
The vendor also announced its Q3 numbers, with revenue dropping 6.5 per cent year on year to $2.2bn. By comparison, HP's sales were flat at $14.6bn in its most recently reported quarter.
But HP's revenue does not tell the whole story. The alarm was sounded earlier this year when it revealed that its print supplies business is struggling, particularly in Europe.
Campaigns promoting the sustainable qualities of its products, as well as the poor quality of third-party "imitations" has done little to turn the tide.
CEO Dion Weisler also departed at the start of this month, citing personal reasons, although there is speculation that his departure was not as clear-cut as was made out.
He was replaced by HP's then-print boss Enrique Lores, which demonstrates where HP plans to focus over the coming months.
Lores has already announced a restructuring that will see HP strip out its regional management layers and cut up to 9,000 jobs, with EMEA president Nick Lazaridis having departed already.
Tuesday 26 November could prove to be an important date, with HP set to announce its quarterly results. Investors will be paying close attention to how the supplies business has performed, as well as how the cost savings are progressing.
One reseller exec CRN spoke to said that the print suppliers business is seen as the heart of HP and an indicator of the health of the wider business; so when this unit struggles, alarm bells ring.
They also questioned what the move would mean for HP Inc's PC business - an arena in which Xerox does not play.
"You'd have a print organisation owning a print business," they said. "Does Xerox have any interest in PCs? I don't think so."
But from a print perspective, things may not be as concerning.
Printerland is one of Xerox's largest partners in Europe, according to managing director James Kight, who said that consolidation in the print market is a good step.
"It's intriguing but I don't perceive it as a negative," he said. "We have a good relationship with both vendors; Xerox is one of our biggest brands and we have a close alignment with them," he said.
"I think the rationale is that there is going to be a lot of consolidation - we've seen Samsung getting bought and this could be the start of more.
"With the cost of research and development it does make sense; this one is just a bit more ‘wow' because it's two huge organisations, but I do think it's inevitable."
In terms of disruption, Kight said that previous acquisitions in the industry have gone smoothly - citing HP's acquisition of Samsung and Lexmark being acquired by private equity.
"I've never really known an acquisition go negative [in the print industry]," he said. "Lexmark had a positive effect, and Samsung was perceived as negative at the time because the industry was losing a brand but it hasn't been negative at all," he added.
Smoke and mirrors
It is also worth considering how serious Xerox's takeover approach actually is.
Howard Hall, managing director at HP partner DTP, speculated that the bid could be a smoke-and-mirrors play from Xerox.
"I've been speculating about it the other way around for the last six months because I don't think Xerox is that healthy," he said.
"To go out and leverage something that much - you never know, but I would be surprised if it's taken that seriously."
Hall explained that despite struggles in its supplies business, he doesn't believe HP is in as bad shape as some people make out - citing the quality of products that it is producing.
However, he did say that consolidation in the print market is inevitable, suggesting that a large portion of it could be among Japanese businesses such as Sharp and Kyocera.
"There does have to be consolidation," he said. "I think you'll see Japanese companies go together because I don't think you could find anyone outside Japan being able to buy a Japanese company because of the cultural fit. So what does that leave? HP, Xerox, Lexmark and a few other players."
Something else that cannot be forgotten is Apogee, which HP acquired last year, partly to protect a huge customer base that may have defected had another vendor acquired the channel partner, and partly because it saw an opportunity to broaden Apogee's managed print business to include other devices.
Xerox meanwhile claims to be placing more of an emphasis on partners, with channel boss Pete Peterson telling CRN the firm hasn't always been the easiest to work with.
HP said that the pair have spoken about a tie-up a number of times in the past.
Clearly things did not materialise on these occasions, and therefore it would be wrong to assume a deal is certain this time around - but it will be interesting to see how the situation unfolds.