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Icahn-inspired Xerox boss armed for bloody battle

Many people close to the two companies believe Xerox's bid and its aggressive tactics are a ploy to achieve a rather different kind of deal.

Article originally published by The Financial Times. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

John Visentin is not someone you would imagine in a battle alongside Carl Icahn. A Canadian of blue collar origins, he spent most of his career working in big tech including a 27 year stint at IBM — not launching the kind of corporate raids with which Mr Icahn has menaced executives for the past four decades.

Yet in early 2018, after Mr Icahn learnt that Mr Visentin had turned down an offer to join Xerox because he opposed the company’s takeover by Japan’s Fujifilm, the New York investor hired the executive as a consultant to plot opposition to the deal. 

Since then, Mr Icahn has won a proxy fight against Xerox’s old management, killed the deal with Fuji, and replaced the company’s chief executive with Mr Visentin — the ultimate reward for his ally.

Now Mr Visentin, with the backing of Mr Icahn, is pursuing one of the goriest M&A battles of the year: a very hostile and highly-leveraged $35bn bid for HP, a rival manufacturer of printers and PCs more than three times its size .

There is a twist. Many people close to the two companies believe Xerox’s bid and its aggressive tactics are a ploy to achieve a rather different kind of deal.

HP held abortive talks about buying Xerox earlier last year. It believes Mr Visentin’s bid is really an attempt to coax the company to come back and present an offer to buy Xerox, according to people involved in the negotiations.

It may well end up that way. HP has twice ratcheted up its defences in the past week, by implementing a poison pill and promising $15bn worth of share buybacks to make a hostile approach from Xerox more difficult to consummate. But it also said  it was willing to reopen talks over a combination.

‘His history is very impressive’

People close to Xerox admitted that being taken over by HP was indeed a possibility. The only caveat, they said, was related to the leadership of the combined company. Specifically: Mr Visentin wants to lead it.

Those people argue that Xerox’s boss would be the better choice, having already proved willing at his own company to aggressively cut jobs and leverage the balance sheet. They added that his rival Enrique Lores, who rose through HP’s ranks from an intern in 1989 to become chief executive four months ago, is considered to be too mild-mannered to successfully integrate the two groups. 

“His [Mr Visentin’s] history is very impressive,” said Jeffrey Sonnenfeld, a Yale management professor who knows both Xerox and HP. “He seems to have a very sensible concept of how to work with HP on this deal.” 

Xerox claims that a combination would generate $2bn in cost and revenue synergies. “A combined company would be both more profitable and better-positioned to diversify into higher growth markets,” Mr Visentin told analysts last month.

Touting his own achievements, he added: “If you look at our team and our track record of what we’ve done with ‘Project Own It’ here, we delivered $1bn [of synergies] over the past 18 months, and we’re on track to deliver the $450m-plus in 2020. So, we have the track record.”

People close to Mr Lores argued that his experience at HP and engineering background made him better equipped to manage a complex company, and he had some support on Wall Street. 

“You can’t cut your way to growth,” said an experienced analyst tracking the sector, adding that “Mr Visentin would struggle to manage a company as diverse as HP”.

‘Poorly received by investors’

Some of the hostile tactics Mr Visentin turned to in pursuit of HP, such as  threatening to overthrow HP’s board of directors, are straight out of the activist handbook written by Mr Icahn and his cohorts. The fact that Mr Icahn was on both company’s shareholder registers was no subtle warning of what loomed for HP. 

HP has fought back by highlighting the worrying amount of debt that Xerox would need to borrow to fund its current bid, which makes the offer more akin to a leveraged buyout and would leave the combined company with a debt to earnings ratio of four times.

Xerox already has a junk credit rating, limiting the amount of debt it can raise for a bid and making it harder for the company to lift its offer again. Its current bid values HP at about $23.59 a share, or roughly $1 above where HP shares changed hands on Wednesday. 

Shannon Cross, analyst at Cross Research, said that the share buyback announced by HP might be sufficient to convince its shareholders to back the company’s management rather than take Xerox’s offer.

“We continue to believe a highly levered transaction, as would be required under terms outlined by Xerox, would be poorly received by investors,” Ms Cross said.

HP, meanwhile, has hinted at exploring talks with other companies — Japan’s Canon and Ricoh have been floated by advisers as potential takeover targets — meaning their strategy could all still backfire on Messrs Visentin and Icahn. 

Some investors, though, have started betting the pair might just get their way. Xerox shares climbed after HP said on Monday that it would engage in discussions.

“I have often been critical of Carl Icahn inspired initiatives,” said Mr Sonnenfeld. “But in this case I think they’re on to a logical path. These companies bring a lot to each other.” 


This article was written by Eric Platt, Ortenca Aliaj and James Fontanella-Khan from The Financial Times and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Article originally published by The Financial Times. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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