From The Motley Fool (February 13)
Xerox claims that the combined company would generate "at least" $2 billion in synergies within the first 24 months and that merging the two printing businesses would create a more formidable player via economies of scale. However, the combined company would also be saddled with over $30 billion in long-term debt. That's troubling because Xerox isn't faring much better than HP. Analysts expect its revenue to decline 4% next year as its earnings – also buoyed by buybacks – rise 1%.
Merging two companies with non-existent organic revenue growth is risky, and cutting costs to boost its cash flows and earnings could cripple its ability to generate fresh top-line growth. That strategy will also barely dent its mountain of debt.
Instead, Icahn will likely direct Xerox to aggressively divest HP's assets to raise fresh cash for buybacks – which would arguably dull its competitive edge against rivals like Lenovo.