Xerox with Eye on HP

Xerox (NYSE: XRX) is reportedly considering buying Hewlett-Packard Inc. (NYSE:HPQ), in what would be a merger of two former American technology giants that have both seen better days.

A story in the Wall Street Journal suggested the Xerox board discussed the possibility of an HP purchase on Tuesday, according to the Wall Street Journal, which cited sources familiar with the matter. The Journal also reported that the Xerox discussions are preliminary and might not lead to an offer for HP. Both sides refused comment.

A deal would be complicated by the fact that HP is more than three times the size of Xerox: HP has a market value of $27 billion, compared to Xerox's $8-billion valuation. But Xerox announced Tuesday that it is selling various stakes in former parts of its business, and it will generate $2.5 billion in cash from those transactions. The Journal also reported that Xerox has been given the blessing by a major bank to receive lending for the transaction, should it go forward.

HPQ stock traveled $1.86, or 10.1%, higher to $20.26 by noon hour EST, while shares in Xerox jumped 87 cents, or 2.4%, to $37.24.

A marriage between the companies could make sense. Both Xerox and HP spun off their big money-making ventures in recent years, leaving behind aging printing businesses that remain profitable. But those earnings are dwindling every year.

HP had surprised investors by growing faster than many had believed possible after its 2015 split with HP Enterprise, but it has struggled in recent quarters.

Although HP still has a sizable PC business, fewer customers are buying ink from HP. Ink sales had long been HP's profit generator: HP would take losses on its printer sales, generating the bulk of its income from ink. But smartphones make printing less crucial, and many customers who do print are able to find cheaper ink suppliers.

The company announced last month that it would cut between 7,000 and 9,000 jobs by 2022. At the time, Enrique Lores, HP's new CEO, called the move "bold and decisive action" to help the company in its next chapter. HP's former CEO, Dion Weisler, stepped down on Friday for a family matter.

Xerox, like HP, relies on a dying business for the bulk of its sales and profit. It sells and services copy machines and printers, primarily for corporations. But sales are falling, declining in each of the past seven quarters.

The deal between two similar businesses could yield cost savings of about $2 billion through layoffs and other synergies, the Wall Street Journal reported.