5 Things To Watch As HP Looks To Boost Shareholder Value

HP is set to announce its latest quarterly results on Monday, along with 'additional information' that will reportedly include a share buyback plan.

When Xerox announced a higher offer to HP shareholders in its hostile takeover bid earlier this month, HP Inc. said it would announce an alternative plan for improving shareholder value on Feb. 24.

That day would be this Monday, and even though HP did already announce measures to make the Xerox takeover more difficult, HP has indicated it still has "additional information" in store for shareholders that day.

[Related: 5 Things To Know About HP's Shareholder Rights Plan]

HP said it will make its announcement in tandem with its fiscal 2020 first-quarter financial results on Monday.

"At that time, when out of its quiet period, HP will share additional information about its plan to drive sustainable long-term value for its shareholders, including through the execution of the Company’s multi-year strategic and financial plan and the deployment of its strong balance sheet," HP said earlier this month.

Xerox has said it plans to ask all HP shareholders to sell their shares through a tender offer, starting "on or around" March 2.

To help entice shareholders, Xerox also said it will raise its takeover offer to $24 a share, from $22 a share previously. The new offer amounts to a $34.9 billion acquisition bid for HP, up from $32 billion originally.

Despite being the far smaller of the two companies, Xerox is seeking to absorb HP in order to bring together the largest players in the copier and printer markets, at a time when the industry is waning.

What follows are five key things to watch on Monday as HP reveals its latest earnings along with new details in its plan to drive shareholder value.

Buyback And Dividend?

On Monday, HP is widely expected to make an appeal to shareholders about why they should stay loyal to HP rather than selling to Xerox. The expectation on Wall Street for months has been that HP is planning a repurchasing of shares.

Share buybacks are often used by companies to boost their stock price and provide investors with returns. HP has recently mentioned share repurchases as an alternate option for creating shareholder value, versus accepting the Xerox takeover, and HP has a healthy cash position and relatively low debt to help enable such a move.

Adding further weight to the buyback possibility is a report from Bloomberg, saying that HP next week will announce a plan to "release billions of dollars to shareholders by acquiring its own shares and paying out special dividends."

The report, which cites sources familiar with the matter, said HP will take new debt to fund the buyback and dividend. The report did not reveal the expected timing and size of the measures.

Shareholder Rights Plan

On Thursday, HP announced a shareholder rights plan to battle Xerox's acquisition bid. The plan includes measures that are triggered if an outside entity acquires 20 percent or more of HP common shares.

In that event, shareholders--other than the hostile acquirer--would be able to buy HP shares at a 50-percent discount. The effect would be to increase the number of shares that an acquirer would need to obtain--making the takeover more expensive in the process.

A second measure could create further problems for Xerox if it is successful in the takeover, by allowing HP shareholders to buy additional shares in the combined company at the same discount--creating major dilution for Xerox shareholders.

Xerox appeared to be unphased by the move by HP, however, saying in statement that it "will press ahead with our previously announced tender offer."

One possibility for Monday's announcement and call with analysts is that HP executives, including CEO Enrique Lores, will provide further details or discussion on the shareholder rights plan.

Quarterly Results

Not to be forgotten is that HP is still running a business while also trying to fend off Xerox, and has quarterly financial results to report. HP will announce its results from its fiscal Q1 of 2020, ended Jan. 31.

A consensus of analysts estimate HP's earnings at 54 cents per share for the quarter, with revenue of $14.63 billion. The results are important to the Xerox situation in the sense that HP is looking to make the case that it is doing well on its own and does not need the outside intervention that Xerox is proposing. Beating the Wall Street estimates could help to support that case.

Notably, the Bloomberg report also featured comments from activist investor Carl Icahn, who is at the center of the HP-Xerox drama as a major shareholder in both companies. Icahn has been pushing for the takeover and has been accused by HP of orchestrating it for his own benefit, with his longtime loyalist John Visentin at the helm as CEO of Xerox.

In the Bloomberg report, Icahn is quoted as saying he would not support a merger of the two companies that didn't include Visentin taking over the combined company. "In this case, to garner the great synergies that exist, it is of paramount importance that John Visentin and his team are the surviving management of the combined company," Icahn reportedly said.

Thus, HP's earnings results on Monday could be another data point used either for or against the continued leadership of HP by Lores, who had just become CEO on Nov. 1.

PC, Print Supplies Results

Potentially hampering HP's results is that the PC industry continues to face a shortage of CPUs from chipmaker Intel, which PC makers have cited as a constraint on sales in recent quarters. HP ranks as the largest PC maker in the U.S. by shipments, and the second largest worldwide.

Still, HP's fiscal first quarter included the final two months before Microsoft's end of support for Windows 7, which likely resulted in significant HP PC refreshes among businesses during the quarter. Research firm Gartner said the final three months of 2019 saw 3-percent worldwide growth for HP in PC shipments.

More troubling, though, could be the results from HP's print supplies business, which has been in sharp decline for the last several quarters.

On the other hand, evidence of improvement in the supplies business in HP's latest quarter could offer proof that HP's plan to turn around the business is starting to work--and help further support the case that HP is doing fine by charting its own destiny.

Comments Or Questions On Xerox?

During HP's most-recent earnings call with analysts, in late November, HP executives including Lores did not discuss or take questions on the Xerox takeover bid. At that point, the bid was just a few weeks old, but had already turned "hostile" and "aggressive," according to HP's characterization at the time.

However, now that the battle has escalated and HP is seeking to persuade the market to its side, it will be interesting to see whether Lores and co. allow questions from analysts on the Xerox takeover, or provide further commentary on the situation in remarks during the call.

At the very least, it could be worthwhile for HP executives to make a point similar to the one that HP Chief Commercial Officer Christoph Schell made in a recent interview with CRN--when he contended that the "noise in the market" is not a hindrance, but is "actually quite stimulating," Schell said. Far from slowing HP down, "it has accelerated us," he said.

"If we speak to our partners and customers, nobody else does. And so I think that the last three months have been really cool, really stimulating--a lot of meaningful conversations with partners, with customers. And I really feel that we're winning," Schell said.