Xerox raid -- 2019-2020   (Sep 11, 2020. Updated Sep 29, 2023)

Summary: Corporate raider Carl Icahn abandoned the raid and sold his 4.4% of HP Inc

In Sep 2023, Xerox bought back Icahn's remaining 22% share of Xerox stock, to be funded by new debt. “I helped Xerox maintain its independence..." --Icahn

If you held shares in HP Inc. (HPQ) in March 2020, you received an offer from Xerox asking you to assist in their proposed hostile takeover of HP.

In November 2019, Xerox launched a campaign to acquire HP Inc. The campaign was abandoned on Mar 31, 2020. Corporate raider Carl Icahn has sold his 4.4% of HP Inc. The raid was financed by $24 billion in loans from Citigroup, Bank of America, and other banks. Top ten shareowners: HP  Xerox.

The Wall Street Journal reported on March 31:

"Xerox Holdings Corp. is pulling the plug on its hostile bid to buy larger rival HP Inc. after the coronavirus pandemic undermined the copier maker's ability to pull off the debt-laden merger.

"Xerox said Tuesday it is ending both its more than $30 billion tender offer and a proxy fight to replace the printer and PC maker's board. Xerox concluded it is no longer prudent to pursue the deal given the public health crisis and resulting market swoon. The move puts the kibosh on one of the biggest mergers in the works and underscores the blow that the coronavirus has dealt to the world of deal making.

"It marks the end of a five-month-long offensive by Xerox, kicked off when its offer became public in early November after the two companies had earlier explored a combination quietly but failed to come to an agreement. HP has repeatedly rebuffed its rival since then, rejecting Xerox's latest cash-and-stock offer of $24 a share and an earlier one as insufficient and too risky given the amount of debt involved. Xerox's move to buy a company more than three times its size was always going to be a challenge, but at the outset the company was in a stronger position than it is today. It had cash coming in from the sale of its joint venture with Fujifilm and its stock had been rising as it continued to cut costs."

https://www.wsj.com/articles/xerox-to-end-hostile-takeover-bid-for-hp-11585684800 [paywalled]

"HP Inc. (NYSE: HPQ) today issued the following statement following Xerox Holding Corporation’s withdrawal of its unsolicited exchange offer and director nominations:

"We remain firmly committed to driving value for HP shareholders. HP is a strong company with market leading positions across Personal Systems, Print, and 3D Printing & Digital Manufacturing. We have a healthy cash position and balance sheet that enable us to navigate unanticipated challenges such as the global pandemic now before us, while preserving strategic optionality for the future.

"Our focus remains on addressing the needs of our ecosystem of stakeholders around the world, ensuring that we build on our strength and resiliency throughout this crisis and position the business for the opportunities ahead..

"HP would like to thank our shareholders, partners, customers and employees for their input and continued support through this process."

https://investor.hp.com/news/press-release-details/2020/HP-Issues-Statement/default.aspx

"The Offer was terminated on March 31, 2020. No shares of HP common stock were purchased by Purchaser pursuant to the Offer. Purchaser has instructed the exchange agent for the Offer to promptly return all shares of HP common stock to the tendering stockholders."

https://investors.xerox.com/static-files/bf8b3a72-dfb1-4915-97ad-b0289a78bcb7

HPAA summary [from March 21, 2020.]

1. HP is six times the size of Xerox -- with declining sales. To finance the proposed purchase, Xerox has arranged for $24 billion in loans. HP says: "Offers HP shareholders something they already own... would disproportionately benefit Xerox shareholders... undervalues HP... would compromise the future of HP... leaving HP shareholders with an investment in a combined company with an irresponsible capital structure..."

2. The current Xerox CEO, John Visentin, was formerly employed by billionaire investor Carl Icahn, who owns 11% of Xerox. The current Xerox chairman is the president of Icahn Enterprises. (Visentin was brought into HP from IBM by Leo Apotheker to run HP Enterprise Services 2011-2012.)

3. Recent cost-cutting at Xerox: Outsourced many functions -- including some engineering -- to India-based HCL, which entailed transferring employees to HCL. Ended some retiree health benefits and reduced severance. Xerox specifically plans to reduce the HP workforce, cut benefit expenses, and eliminate the voluntary retirement program.

4. Contrary to news stories, the April 21 offer deadline was not changed -- despite the Coronavirus crisis and dramatic changes in HP and Xerox stock prices.

5. Brokerages varied in the notifications they sent to their clients. Morgan Stanley has not sent a notification yet. TD Ameritrade sent only a link to Xerox's 165-page offer. Fidelity explained the terms of the offer in a single 350-word paragraph. Merrill and Schwab provided a readable explanation. Only Vanguard mentioned HP's opposition.

6. A shareholder's acceptance of the offer is "irrevocable." However, Xerox could back out for any of numerous reasons.  

The notice sent via your broker says "Action Required" and gives a deadline of April 20. Actually, you can elect to do nothing at this time:

- If you tender your shares now, you can choose one of three combinations of Xerox stock and cash -- to be paid to you if a majority of all shares are tendered to Xerox.

- If you choose to take no action AND a majority of shares are tendered to Xerox, your HP shares will be automatically tendered -- or you can choose "...cash payment equal to the 'fair value' of their shares of HP common stock, as determined by a Delaware court." (Details in material provided by your broker...)  [With any takeover -- whether hostile or not -- if a majority of the shares vote in favor of the takeover, the shares that were not voted in favor get bought out or converted per the terms of the offer. For example, here's what happened with HP's friendly takeovers of Compaq and EDS: Compaq and EDS shares stopped being traded on the stock market. Per the terms of the two offers, every Compaq shareholder got shares in HPQ and every EDS shareholder got cash from HP.]

- HP Inc: "If you have inadvertently tendered your shares and need help in withdrawing your shares from Xerox's offer, please call:" Innisfree M&A at 1 877-750-5838 US/Canada or 1-412-232-3651

Further information and sources
(None of these links requires registration)

1. HP and Xerox

HP mailing to shareholders:
"Offers HP shareholders something they already own... would disproportionately benefit Xerox shareholders... Undervalues HP... would compromise the future of HP... leaving HP shareholders with an investment in a combined company with an irresponsible capital structure..." (Reported to the SEC as Exhibit (a)(3) of HP's 14D-9 filing of March 5.)     

March 11 interview with HP CEO Enrique Lores:
"The overlap is small. We're a $60 billion company... we do about $2.8 billion in managed print services, which is where we compete. They're about a $9 billion business. That's why when they say there are $2 billion in synergies, out of a combined $12 billion in business -- well, that would be a miracle."
https://www.barrons.com/articles/hp-ceo-lores-on-coronavirus-the-future-of-the-pc-business-and-the-xerox-bid-that-wont-die-51583939323

2. About Carl Icahn and Xerox management.

Encyclopedia Britannica profile of Carl Icahn:
"...took TWA private and sold off valuable routes to other airlines, thus increasing his own personal wealth while plunging the company heavily into debt and, in the view of critics, forcing it into bankruptcy..."
https://www.britannica.com/biography/Carl-C-Icahn

The current Xerox CEO, John Visentin, was formerly employed by billionaire investor Carl Icahn, who owns 11% of Xerox.
Visentin was brought into HP from IBM by Leo Apotheker to run HP Enterprise Services 2011-2012.
https://www.linkedin.com/in/johnvisentin/

3. Xerox cost-cutting techniques and plan for HP.

- Since 2009, India-based HCL has managed "aspects of Xerox's mechanical, electrical and software engineering activities for printer and imaging product lines."
- Added a seven-year $1.3 billion agreement with HCL to outsource administrative, support, IT, and finance functions worldwide. "...a group of Xerox employees will transfer to HCL."
https://www.businesswire.com/news/home/20190319005741/en/HCL-Xerox-Expand-Strategic-Partnership-Accelerate-Operational  (Xerox press release.)

- Ended some retiree health benefits.
https://www.democratandchronicle.com/story/news/2018/10/16/xerox-cut-benefits-non-union-retirees/1657590002/  (Newspaper in area with major Xerox employment.)

- Reduced employee severance packages.
https://www.democratandchronicle.com/story/money/business/2018/10/25/xerox-cut-900-jobs-worldwide-last-fiscal-quarter-fuji/1761462002/  (Local newspaper.)

Xerox shareholder presentation on HP: 
"...incremental run-rate cost synergies of at least $2bn within 24 months." (Page 5)
"Optimize productivity and workforce" i.e. layoffs (Page 16)
"Harmonize benefits and reduce cost." (Page 16)
Elimination of voluntary retirement program (Page 17) 
https://www.xplushp.com/media/1110/xrx-hp-shareholder-presentation.pdf

4. Xerox campaign was not suspended on April 21, 2020.

Contrary to news stories, the April 21 offer deadline is unchanged -- despite the Coronavirus crisis and lower HP and Xerox stock prices.

"In light of the escalating COVID-19 pandemic...  we believe it is prudent to postpone releases of additional presentations, interviews with media and meetings with HP shareholders...
"For the avoidance of doubt, Xerox does not consider the market decline since the date of its offer or the temporary suspension of trading in HP shares that occurred on March 10, 2020 and March 12, 2020 as a result of market-wide circuit breakers procedures to constitute a failure of any condition to its offer to acquire HP. Xerox will take the same view on any future temporary trading halts, unless otherwise stated in advance."
--Most recent Xerox press release about HP (Mar 13, 2020)
https://www.news.xerox.com/news/Xerox-releases-statement-related-to-COVID-19-and-its-proposal-to-acquire-HP

5. Brokerages varied in the notifications to shareholders. (Status as of March 21, 2020)

- As of March 21. 2020, Morgan Stanley had not sent a notification yet.

- TD Ameritrade sent only a link to Xerox's 165-page offer.

- Fidelity provided an explanation of the terms of the offer -- in a single 350-word paragraph.

- Merrill and Schwab provided readable explanations of the terms.

- Only Vanguard mentioned HP's opposition in their notice. (Our thanks to the members who provided redacted copies.)

6. Xerox can back out.

A shareholder's acceptance of the offer is "irrevocable." However, Xerox can back out for any of numerous reasons.

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