Media Moves

Coverage: Icahn takes on Xerox

November 24, 2015

Posted by Meg Garner

It is no secret Xerox has struggled in recent years, and now the company has one more thing to face– an investment by Carl Icahn. The notorious activist investor disclosed Monday that he has amassed a 7.1 percent stake in the company.

Josh Beckerman and Drew Fitzgeraldü of The Wall Street Journal had the news of Icahn’s latest investment:

Xerox Corp. has struggled for years with shrinking sales of printers and copiers. Now the 109-year-old company has a new challenge: Activist investor Carl Icahn has taken a big stake and is trying to shake things up.

Mr. Icahn disclosed Monday that he has accumulated a 7.1% stake in Xerox, saying the company is undervalued and he may seek board seats. Xerox shares, which had fallen 22% so far this year as of Monday’s close, rose 7.1% in after-hours trading to $11.51.

Mr. Icahn’s disclosure comes a month after Xerox said it would launch a review of its business. After Xerox posted its first quarterly loss since 2010, the company’s chief executive, Ursula Burns, said on Oct. 26 that “undertaking a comprehensive review of structural options for the company’s portfolio is the right decision at this time.”

Xerox spokesman Sean Collins said Monday the company welcomed open and constructive dialogue with shareholders. “Our board and management team are committed to improving performance and creating value for shareholders and will continue to take the actions to advance these objectives,” he said.

Leslie Picker of The New York Times explained why Icahn would invest in Xerox to begin with:

In a filing with the Securities and Exchange Commission, Mr. Icahn announced he had built up a 7.1 percent stake in Xerox, saying that the shares, which had fallen 22 percent this year, were undervalued.

Mr. Icahn said that he would have “discussions with Xerox’s board about improving operational performance and pursuing strategic alternatives, as well as potentially attaining board representation.”

“We are aware that Carl Icahn has made an investment in the company,” Xerox said in an emailed statement. “Xerox welcomes open communications with shareholders and values constructive dialogue.”

The fact that Xerox has attracted Mr. Icahn to the fray is not especially surprising. The company, known for printers and copiers, reported declining revenue and a loss in the third quarter, despite being profitable during the same period a year ago.

Ursula Burns, the Xerox chief executive, last month announced some steps the company would take as a result.

“Although we already have taken steps to accelerate cost reductions and prioritize investments to drive improved productivity and higher margins, our board determined that undertaking a comprehensive review of structural options for the company’s portfolio is the right decision at this time,” Ms. Burns said in a statement on Oct. 26.

Shares of Xerox surged nearly 9 percent in after-hours trading.

Arathy S. Nair and Anya George Tharakan of Reuters spoke with analysts about what an Icahn investment means for Xerox:

Ivan Feinseth, a Tigress Financial Partners LLC analyst, offered a cautious view. “I like Icahn. He has done well but I just don’t know what he can do here,” Feinseth said.

On the other hand, Susquehanna Financial Group LLLP analyst James Friedman said there are multiple things that Icahn can push for in the company, including selling the equity stake in its joint venture Fuji Xerox and separating the Documents business and the IT services business.

Xerox’s IT services business offers business process outsourcing while the document outsourcing business primarily includes sales of printers and copiers.

Friedman thinks Icahn can position himself for a board seat in the upcoming May elections.

“Getting on the board is the easy part, actually fixing the business is harder,” Friedman said.

Susquehanna Financial has a valuation on Xerox of $13 per share based on a sum of the parts model, with $9 weighted on the documents business, $3 on the services business and the remaining on the Fuji Xerox business.

Xerox, whose shares have fallen more than 22 percent this year, is trying to turn itself around, shifting focus to software and services as corporate customers cut printing costs and consumers shift to mobile devices.

Jing Cao and Beth Jinks of Bloomberg gave background on Icahn and his other technology investments, such as Apple:

The move makes Icahn the second-biggest shareholder after Vanguard Group with an 8.4 percent stake, according to data compiled by Bloomberg.

Xerox shares gained 7.5 percent to $11.56 at 6:33 p.m. in New York after soaring as much as 23 percent in extended trading after Icahn’s filing.

Made famous by its document technology, including printers and copiers, Norwalk, Connecticut-based Xerox has been struggling to drive growth in higher-margin services. The company has spun off some businesses and shifted focus toward others including health care.

Icahn, 79, rebranded himself as an activist investor and outspoken shareholder advocate after gaining fame as a corporate raider in the 1980s. In recent years, he has taken stakes in technology-related companies including Apple Inc., EBay Inc., and Netflix Inc., and agitated for changes such as share buybacks and spinoffs, which he argued would create shareholder value.

The New York-based investor is worth about $21 billion, according to data compiled by Bloomberg, and primarily invests his own fortune, rather than relying on money from outsiders.

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