Xerox (NYSE: XRX) and Hewlett-Packard (NYSE: HPQ) failed to reach a deal to merge this week. Even though the cash and stock offer from Xerox to buy HP was more than the market capitalization of the stalwart printer manufacturer, doubts over the fate of the reorganized company led HP to reject the overture from Xerox. Shares of HP have slid by several percent after this announcement, but HP is planning on its own counter-offer for being bought out by Xerox. This buyout would represent a major change in a printing and copying market that has suffered greatly in recent years from the mass proliferation of digital communications that are making printed content less relevant to the business and consumer sectors.
The merger, or lack of one, of these two companies is no guarantee of either's success. Xerox has been trying to shed its non-core assets in recent years as the enterprise copier market falters. HP is in a similar position, with sales of its consumer printers and copiers declining as people opt for a more digital way of providing information. HP recognizes that reorganizing under the Xerox umbrella is a way of helping both companies and analysts are expecting a counter-offer that would better reward HP shareholders in the buyout. With this in mind, Xerox expects a cost savings of $2 billion each year from a merged company, which is a significant improvement considering the combined market caps of both companies are less than $50 billion.
One of the biggest individual influences in the buyout talks between Xerox and HP is major investor Carl Icahn. The New York billionaire owns more than 10% of Xerox and almost 5% of HP and is heavily invested in the fate of this merger as a result. This is another attempt by Icahn to assist a smaller company in acquiring a larger one, like the leveraged buyout of Caesars Entertainment (NYSE: CZR) he commandeered several years prior.
HP still has time to make a counter-offer, but there is still considerable uncertainty surrounding the ability of the companies, combined or not, to succeed in a changing business environment.