Icahn: Xerox-HP deal is a 'no-brainer'

Jo Francis
Thursday, December 5, 2019

Activist investor Carl Icahn has parked his tanks firmly on HP’s lawn with a no-holds-barred open letter to HP shareholders urging them to back the proposed takeover by Xerox.

HP's board is under attack from investor Carl Icahn
HP's board is under attack from investor Carl Icahn

Icahn Associates is the biggest shareholder in Xerox with a stake of nearly 11%. He also recently bought nearly 63m shares in HP, giving him a 4.24% stake in the PC and printers group.

At the end of last month Xerox said it would take its $33bn (£26bn) takeover proposal directly to HP’s shareholders, after HP’s board rejected the offer.

The deal is $22 a share, of which $17 would be in cash.

In his letter Icahn stated: “These holdings place me among the largest shareholders of each company and I, as well as many others, believe firmly in the industrial logic of combining these two great American businesses.”

He hit out at HP’s board for its “unreasonable refusal to engage in a customary mutual due diligence process”.

“What is the downside of a mutual expedited due diligence process where there is so much to gain? Because I see no other plausible explanation for HP to refuse to engage in customary mutual due diligence, I am left to wonder whether this is simply a delay tactic aimed at attempting to preserve the lucrative positions of the CEO and members of the board, which they fear might be affected if a combination does take place,” his letter stated.

“I cannot believe that the recalcitrance of HP’s board is driven by any real confidence in its standalone restructuring plan, which the market, shareholders and analysts met with extreme indifference and which seems to amount to little more than rearranging the deck chairs on the Titanic.”

He said the merits of combining Xerox with the much larger HP business should be “obvious to all involved”, including more than $2bn in cost savings.

“Over the years, I have seen many obvious ‘no-brainers’ that would greatly enhance value and have worked hard to facilitate these, but I can say without exaggeration that the combination of HP and Xerox is one of the most obvious no-brainers I have ever encountered in my career – one where activism should not even be necessary at all because the merits of the combination are so obvious to everybody involved.”

Icahn’s letter concluded by imploring all HP shareholders who agree with his position to “reach out to HP’s directors to let them know that immediate action is necessary to explore this opportunity NOW while there is still a willing counterparty on the other side”.

HP had not responded to the letter at the time of writing.

HP is more than seven times the size of Xerox, with total sales of $58.8bn and a market cap of $29.7bn.

HP’s Graphic Solutions business – DesignJet, Latex, HP Indigo, HP Scitex and the PageWide presses – is part of its $4.6bn turnover Commercial Hardware business unit which also includes office printing and 3D printing. This business unit in turn is part of HP’s $20bn Printing division that includes home and office printing.

HP's biggest division is Personal Systems, which includes PCs. 

Xerox had sales of $9.8bn last year and has a market capitalisation of $8.29bn. Its high-end printing systems including the iGen, Iridesse (made by Fuji Xerox) and production inkjet presses brought in sales of $424m.

The full text of Icahn’s letter can be found here.



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