HP said on Sunday that it had turned down a takeover offer from Xerox, rejecting a deal that would have brought together two once-formidable printing companies that have faced business difficulties as demand for printed documents and ink has waned.
The cash-and-stock offer from Xerox “significantly undervalues HP and is not in the best interests of HP shareholders,” company officials wrote in a letter to John Visentin, Xerox’s chief executive.
The letter to Xerox called the proposal “highly conditional and uncertain” and expressed qualms about “the potential impact of outsized debt levels on the combined company’s stock.” It also raised concerns about a recent stark decline in Xerox’s revenue.
But the letter left open the possibility of a merger under different terms. “We recognize the potential benefits of consolidation,” it said, “and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox.”
A Xerox spokeswoman did not respond to a request for comment.
In its proposal, submitted on Nov. 5, Xerox put the total value of a possible transaction at $33.5 billion, or $22 a share — $17 in cash and 0.137 Xerox shares for each HP share. Xerox said a merger would save $2 billion in costs within two years.
HP and Xerox have cut costs significantly in recent months as they have struggled to navigate the accelerating erosion of the traditional printing business.
Over the years, HP has aimed to sell printers at no profit or a loss, while making its profit on selling a steady stream of replacement cartridges, called aftermarket supplies.
But a number of forces are undermining that model: the popularity of smartphones and tablet computers that allow electronic documents to be easily transported; the rise of sharing services that people use to distribute documents in the cloud; and a growing awareness of the environmental effects of profligate printing.
At the same time, companies that collect, clean and rebuild printer cartridges have made steady inroads. And the rise in recent years of Chinese cartridge-clone makers in particular has hurt the sales and profits of both HP and Xerox.
Both companies have announced streamlining measures in recent months. Xerox intends to cut costs by more than $640 million. And HP said in October that it would trim as much as 16 percent of its work force as part of a broader restructuring plan.
Xerox, in its copying and printing business, faces similar challenges to HP. But Xerox is strong in larger machines for office work. HP’s printers and ink are typically used by small teams of office workers or in homes to print out standard letter-size sheets.
“Xerox and HP really do have complementary businesses,” said Keith Kmetz, an analyst at IDC.
Both companies are trying to make inroads in 3-D printing. But that is an emerging market with many competitors, and 3-D printing is more a next step in manufacturing rather than office work, where Xerox and HP are entrenched.
Steve Lohr contributed reporting.
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