The Carl Icahn Playbook May Hint at What’s Next for HP and Xerox

In order to look at what’s likely to be next for HP Inc. and Xerox, a clue may lie in Carl Icahn’s playbook when he’s been confronted with similar situations.


Icahn is currently the majority stake holder in Xerox with 10.6 percent of its share (he also holds a 4.24-percent in HP but isn’t the majority stakeholder). Along with Xerox investor Darwin Deason, last year, he was responsible for derailing a proposed sale of Xerox to Fujifilm, saying the deal under-valued Xerox. In doing so, he was responsible for the resignation of most of the Xerox board of directors, replacing them with Icahn-loyalist board members and an Icahn-loyalist Xerox CEO. He has urged a merger with HP, stating that “it’s a no-brainer.”

Icahn first became prominent as a corporate raider in the 1980s with TWA Airlines, which he took over, and then took the company private through a $650 million stock-buyback plan that allowed him to regain almost his entire $469 million investment. This also saddled TWA with $540 million in debt. With the subsequent sale of its major routes, TWA became much weakened and eventually declared bankruptcy.

In the past, Icahn has sought the sale of assets of various companies he’s invested in, but sometimes not succeeding. The playbook is to buy a stake in the company, press to appoint members to the board – sometimes suing or threatening to sue to gain the seats, and then sell assets, at which point shares of the company go up, and Ichan sells his stake, making a handsome profit. Or as The Wall Street Journal put it in 2012: “…take a stake, talk to management, tell the public he thinks the company should sell, make an offer and commence battling with management.”

According to Investopedia, Icahn’s playbook is to identify companies with under-performing stock prices, acquire a significant stake, then call for a new board of directors and/or asset sales in order to boost the company’s stock price.

Success with Motorola

In 2007, Icahn purchased a 1.4 percent stake in Motorola. He then sought a  seat on the board of directors, but was rebuffed by a majority of stockholders.

He then sued Motorola in 2008 for the right to gain four seats on the  board. Once he was gained his four seats, he then forced Motorola to sell its  mobile business. Then, in 2011, Google bought Motorola’s Mobility business for $12.5 billion (or $40 a share). Icahn saw a generous profit: the day before the sale, his 26.8 million shares were worth $655.8 million; the day after the sale, his shares were worth $1 billion.

While the Icahn playbook succeeded with Motorolo, other results have been mixed, including efforts with film-maker Lionsgate, computer-maker Apple, and cable-company Timer Warner.

For Ichan, the ultimate goal is to simply to sell shares for much less than he paid for them. And, since there are some likely advantages to an HP-Xerox merger, it’s likely both companies’ share prices would rise  – at least initially. He’s set $40 per share for Xerox as an acceptable price.

Is this Actually a Bid for HP to Acquire Xerox?

Many have thought – including us – that the much-larger HP would seek to acquire the smaller Xerox (and HP Inc. is said to have indicated interest in 2017). And some analysts now think Xerox’s bid is actually meant as a push for HP to buy Xerox.

Whether this is true or not, it seems HP may be becoming increasingl wary of buying Xerox. HP took pains in its last letter to Xerox’s board to point  out Xerox’s declining revenues since June 2018, and also took issue with Xerox’s sale of its 25-percent stake in Fuji Xerox, stating that the loss of the stake meant a loss of Fuji Xerox hardware and access to the Asia-Pacific (Xerox countered by stating that it negotiated a hardware deal with Fuji Xerox, and that its declining revenues are part of a turnaround plan that will be reversed.)

Our Take

For HP what’s likely to happen is that Icahn will seek to take over HP’s board of directors and force a sale. But HP appears to be becoming more and more reluctant, and it’s noted that it’s being advised by a law firm that has battled successfully with Icahn in the past.

If Icahn continues to buy HP shares and becomes the largest HP shareholder (he’s currently the fifth-largest HP investor), that’s likely a sure sign that he intends to wage an aggressive proxy battle. Our prediction: expect an Ichan proxy war with HP’s board and get ready for some fireworks.

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