XRX Xerox Holdings Corporation

By Cara Lombardo 

Activist investor Carl Icahn is pushing for the proposed union of Xerox Holdings Corp. and HP Inc., arguing that a combination of the printer makers could yield big profits for investors.

Mr. Icahn, who owns a 10.6% stake in Norwalk, Conn.-based Xerox, told The Wall Street Journal that he also owns a 4.24% stake in HP, valued at roughly $1.2 billion. His stake in HP, not previously reported, could increase pressure on the printer and personal-computer company to strike a deal.

Xerox last week made an offer to buy HP for $33 billion, or $22 a share -- $17 in cash and 0.137 Xerox share for each HP share. It is a bold move given that HP's market value, at $29 billion, is more than three times that of Xerox. The deal would unite companies that were once giants of American industry but whose fortunes have waned in the digital age.

HP confirmed the approach the following day without commenting further on the bid. HP said in a statement Wednesday that it is committed to doing what is in the best interests of all HP shareholders.

In his first public comments about the potential deal, the 83-year-old billionaire said he believes it is in the best interests of both sets of shareholders given the potential for cost savings -- pegged by Xerox at more than $2 billion -- and for the combined company to market a more balanced portfolio of printer offerings.

Mr. Icahn said he isn't set on any particular structure, an apparent nod to comments from some analysts that a purchase of Xerox by HP may make more sense. Xerox, famous for its eponymous copiers, has a market cap of about $8 billion.

"I think a combination is a no-brainer," Mr. Icahn said. "I believe very strongly in the synergies," he said, adding that "there will probably be a choice between cash and stock and I would much rather have the stock, assuming there's a good management team."

Both Xerox and HP have been scrambling to retool their businesses as the need for printed documents declines. Both are in cost-cutting mode, with Xerox planning to cut roughly $640 million in expenses under Chief Executive John Visentin while HP has tasked its new CEO, Enrique Lores, with implementing a plan to save $1 billion annually.

Xerox primarily makes large printers and copy machines and most of its nearly $10 billion in annual revenue comes from renting and maintaining them for businesses. HP, based in Palo Alto, Calif., sells mainly smaller printers and printing supplies and is also one of the largest PC makers in the world. It posted revenue of more than $58 billion for its most recent fiscal year, ended in October 2018.

Mr. Icahn and another major Xerox shareholder, Darwin Deason, put Mr. Visentin in charge after scuttling Xerox's planned merger with Fujifilm Holdings Corp. last year and taking control of its board.

Mr. Icahn said it was Mr. Visentin who had the idea to approach HP, and his team worked with advisers to bring the idea to Xerox's board in early November. Mr. Icahn said the Xerox board is calling the shots and that his two representatives aren't participating in deliberations.

Mr. Icahn said his team began looking at HP in late February when its stock dropped more than 17% in one day following a disappointing earnings release. He said when he began buying shares in late April, he didn't have a deal with Xerox in mind and it wouldn't have been possible anyway given constraints in the copier company's longstanding partnership with Fujifilm. Rather, he said, he believed the shares were undervalued and could possibly benefit from activism given HP's significant cash flow and small amount of debt.

"I've found over the years that these types of companies that are in shrinking industries tend to decline much more slowly than many market participants may predict, while continuing to generate substantial amounts of cash," he said.

Mr. Icahn has been a frequent advocate over the years of the cost-cutting benefits of consolidation.

He said he also saw growth opportunities from newer technologies such as software services, 3-D printing and artificial intelligence.

Mr. Icahn said he stopped buying HP on Aug. 14 when the size of the position was around the typical toehold stake of $1.25 billion and before reaching the 5% threshold that would have required him to disclose it. He said he doesn't typically buy more than 5% unless he is prepared to launch an activist campaign, and at that time he hadn't yet made a decision to run a campaign at HP.

Write to Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

November 13, 2019 22:56 ET (03:56 GMT)

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