HP Gets China's Nod To Acquire Samsung's Printer Business

The much awaited pending acquisition of Samsung (KS:005930) Electronics’ printer business by HP Inc. (NYSE:HPQ) , for $1.1 billion, crossed another milestone after China's Ministry of Commerce gave its approval for the transaction, per media sources. However, the deal comes with certain conditions which are meant to restrict the company from monopolizing the domestic laser printer market.

Per Reuters, the Ministry of Commerce restricts HP from buying even a minority stake in any other A4 printer manufacturers in the country. The regulatory body also forbids the company to “not adapt its printers to restrict compatibility with third-parties or claim in advertising that its printers are not compatible with other suppliers.” Additionally, HP has to report its pricing and other related data to the ministry every six months, reported the news agency last Thursday.

Notably, since the news surfaced, shares of HP have gained approximately 1.6%. The stock has had a remarkable run so far this year. In the year-to-date period, HP has surged 38.6%, outperforming 33.3% growth recorded by its industry.

It should be noted that HP made this acquisition deal in September 2016, in an effort to turn around its printer business. With the Chinese government giving its nod, the company anticipates to close the deal in the fourth quarter of this calendar year.

The acquisition is a strategic move by HP, as it will expand the company’s printing business as Samsung's printer business has more than 6,500 printing patents. Along with this, the deal will bring in additional 1,300 researchers and engineers, which will support development and manufacturing of HP printers, going forward.

HP is one of the two publicly-traded entities formed after the November 2015 split of Hewlett-Packard Company. Besides HP, the split led to the formation of Hewlett Packard Enterprise Company (NYSE:HPE) . HP primarily focuses on PCs, and printing products and services.

Notably, over the past several years, the company’s printing business has been facing challenges like sluggish demand and cut-throat competition in the space, which have eroded its revenues and market share.

It should be noted that demand for printers is not as strong as it was 10 years ago. It has witnessed a secular decline over the past several years, as consumers are increasingly favoring digital alternatives over printed materials due to the former’s cost effectiveness.

Furthermore, over the past few quarters, HP has been losing market share to its Japanese rivals — Canon and Epson — due to intense price competition. These Japanese manufacturers have been able to slash prices due to a weak yen compared to the U.S. dollar.

Thus, we believe the acquisition of Samsung’s printing operations could help HP turn around the printer business. The transaction will not only eliminate a major competitor but also help control prices. Apart from this, the acquisition will also give HP access to Samsung’s partners and strengthen the former’s position across various geographies.

Currently, HP carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader technology sector are NVIDIA Corporation (NASDAQ:NVDA) and Micron Technology, Inc. (NASDAQ:MU) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected EPS growth rates for NVIDIA and Micron are 10.3% and 10%, respectively.

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