The tit-for-tat public letter exchanges that began Nov. 5 between the boards of Xerox Holdings and HP Inc. took another turn on Dec. 4 when billionaire activist investor Carl Icahn — who owns major stock shareholder positions in both companies — weighed in with his own open letter aimed directly at HP shareholders.

In it, Icahn implores HP shareholders to pressure HP’s board of directors to expedite a mutual due diligence process and, ultimately, accept Xerox’s $33.5 billion cash-and-stock acquisition offer for the Palo Alto, Calif.-based company. According to Norwalk, Conn.-based Xerox, the offer implies a 77% cash position, with the balance comprising Xerox shares, resulting in HP shareholders owning approximately 48% of the combined company.

Icahn follows a similar script to an earlier letter that his protégé, Xerox Vice Chairman and CEO John Visentin, issued, which pointed to more than $2 billion in synergy savings that could be achieved by combining the two companies. But he also ratcheted up the attack, arguing that HP’s new CEO, Enriques Lores, and fellow HP board of directors members are selfishly opposing the deal to preserve their “lucrative positions … which they fear might be affected if a combination does take place.”

Icahn also called HP’s previously announced standalone restructuring plan — which includes a massive reduction of as much as 16% (9,000 workers) of HP’s 55,000-employee workforce, as well as plans to institute a new pricing tier model for its printing equipment based on whether or not a customer agrees to solely use HP consumables or not — as amounting “to little more than rearranging the deck chairs on the Titanic.”

One news outlet, CRN, pointed out in a Dec. 5 article that Xerox and HP have a large share of institutional investors with common positions in both companies. “Five of the top 10 investors — The Vanguard Group, State Street, BlackRock, Icahn Associates and Geode Capital — combined own 23% of HP with $6.08 billion invested,” wrote CRN reporter O’Ryan Johnson. “That same group owns 31.86% of Xerox, with $2.39 billion invested.”

As of Dec. 9th, Xerox CEO John Visentin met with some HP shareholders to walk them through the key points of the proposed acquisition. In what it describes as “undisputed” logic, Xerox posits that the increased cash flow of a combined HP/Xerox would help pare debt, increase capital returns to shareholders and drive greater investment in innovation. Xerox also said HP has key market gaps in segments where Xerox is strong, such as Office A3 and managed services. According to Xerox, the complementary portfolios would increase the total addressable market for both brands.

“The value of the transaction goes beyond economics. In consolidating industries, first movers not only win but also have an opportunity to reshape the competitive landscape in an enduring way,” John Visentin, Xerox’s chief executive officer, said in the presentation.

The presentation for HP shareholders also says that a merger of their operations would allow cross-selling and a unified platform for clients. According to Xerox, this could yield an estimated US$1 billion to US$1.5 billion revenue growth.

Ultimately, it will be up to HP shareholders to decide. In the meantime, based on the continued back-and-forth letters being made public, it’s now HP’s turn to counter Icahn’s claims and Xerox’s presentation.

Source: Printing Impressions
Source: zdnet
Source: BNN Bloonburg