05101520$25 BILLIONFY 2015 2016 2017 2018 2019 2016 2017 2018 2019 2020HP PRINTING SEGMENT REVENUES HP STOCK PRICECUMULATIVE CHANGE
(TOTAL RETURN)XEROX TOTAL REVENUESXEROX STOCKSOURCE: BLOOMBERG$20.1 B.$9.1 B.050100150%MARCH 5,
2020
106.0%29.4%40 FORTUNE APRIL 2020Visentin has delivered on the cost
cutting: The company has sharply re-
duced what it spends on outsourcing
such functions as IT management
and payroll and medical claims man-
agement, lowering total expenses by
almost 10% in 2019. The question
now is whether HP’s investors will let
him take his shears to their company.TO WOO INVESTORS, HP is tak-
ing a cash-is-king approach.
On Feb. 24 it unveiled a plan
to buy back $15 billion in
stock over three years and
pledged to return 100% of
free cash flow to shareholders. CEO
Enrique Lores tells Fortune that
Visentin’s bid both undervalues HP
and would leave it overleveraged. HP
is open to acquisitions, he says, but
can expand sales and profits without
them, by shifting the product mix to
faster-growing business lines—in-
cluding, yes, 3D and digital printing.
While Wall Street analysts are
skeptical of that claim, HP’s counter-
moves have won some converts. “The
cash return program probably moved
HP from a disadvantage to a slight
advantage,” one institutional share-
holder says. This investor believes
Xerox could regain its edge by raising
its offer price by $2 to $3 a share.
But that could mean taking on even
more debt, a precarious proposition.
If Xerox looks like the winner as
the vote approaches, it’s possible HP
will bid for Xerox. Indeed, in a Feb. 27
proxy filing, HP gave a detailed nar-
rative of negotiations on just that
topic. According to the filing, Icahn
and Visentin proposed selling Xerox
to HP at around $45 a share—a huge
premium over Xerox’s early Marchshareholders may involve HP buy-
ing Xerox. The combined company
would carry much less debt, prob-
ably less than $10 billion net of
cash holdings, leaving more cash to
invest in R&D and acquisitions, even
as it reaches more customers. The
problem, in some shareholders’ eyes:
If HP is the buyer, Visentin and his
“Let’s not copy, let’s reinvent” mindset
might be sidelined. And the benefits
of consolidation may mean that a
Xerox acquisition is better than none.
Darwin Deason knows who he’s
cheering for. The 80-year-old Texan
sold an outsourcing services company
to Xerox in 2010 and still owns 4% of
its stock; it was Deason who teamed
with Icahn, 84, to block the Fuji take-
over. Deason says he’s amused to be
“at my last rodeo, fighting for the little
guy to buy the big guy, when it almost
always goes the other way around. But
here I am riding the bull!” If that bull
breaks some dishes in the sleepy china
shop of the printer industry, the two
octogenarians won’t be the only ones
who profit.price of $32. But even at that price,
it’s a move that HP, with its much
larger revenue stream, could afford.
If HP becomes the buyer, the
boardroom maneuvering will undergo
some fascinating twists. HP would
need to convince institutional inves-
tors that it isn’t overpaying, lest they
flip their support to Xerox. It would
also likely need to propose a friendly
merger to the same Xerox manage-
ment that it has been trashing as
irresponsible. The deadline for HP to
unseat Xerox’s board in a hostile take-
over at its annual meeting has passed
for 2020, a scenario that Jim Woolery
of King & Spalding, Xerox’s lawyer,
says gives his client an advantage.
The best long-term outcome forWHEN THE INK RUNS LOWXerox’s executives and biggest shareholders argue that consolidation with HP could
revive both companies’ flagging revenues. Other investors have their doubts.The best outcome may well involveHP buying Xerox because the combinedcompany would carry much less debt.XER.W.0420.XMIT.indd 40 FINAL 3/9/2020 6:12:17 PM