Breakingviews: Xerox’s HP bid walks, quacks like Carl Icahn

Has Xerox made a copy of Carl Icahn’s playbook? Ejecting a company’s board is something other companies don’t do often, and activist investors attempt reasonably frequently. So if Xerox proposes to oust most of the directors on HP’s board, it’s reasonable to see parallels with the tactics of Icahn, who holds shares in both printer makers. That doesn’t help Xerox’s case in pushing its $33 billion takeover.

The potential merger has reached an impasse. HP won’t let Xerox see non-public financial information unless Xerox gives away some private information first. While HP’s request is valid in light of Xerox’s declining revenue, the near-20% rise in HP’s shares since November suggests it’s not something that should sink a deal. Rather it suggests HP is playing for time.

Xerox needs other ways of raising the pressure. Proposing new directors, who would stand for election at HP’s shareholder meeting in the spring, is aggressive. At the best of times, a new board is destabilizing. In this case, HP’s existing one is solid. It’s relatively new, diverse for an IT company, and it includes financial types unlikely to be sentimental about advising a company to sell. The one weakness: Chairman Chip Bergh also has a day job running jeans company Levi Strauss.

So the boardroom assault seems mostly symbolic. It gives Xerox leverage, which it can withdraw if the two companies reach an accord. Both companies will soon report earnings that give a better picture of their relative strength.

The catch is Icahn. While he’s not on Xerox’s board and holds only 11% of the shares, he is still influential. He sourced four of the company’s seven directors, including Chief Executive John Visentin, after helping remove several others. A deal would unite his stakes in Xerox and HP and transmit his influence over an entity worth some $40 billion. If anything, it’s Xerox that could use more outside voices without ties to its biggest shareholder.

Xerox can argue that pursuing a proxy battle is just a sign of its determination. But Icahn – currently trying to oust directors at oil driller Occidental Petroleum – clearly supports it, too. As an overlapping shareholder, his interests don’t fully square up with investors on either side of the deal. Anything that emphasizes his guiding role risks clouding the argument that shareholder value is the only thing driving this bid.

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