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Icahn Urges HP to Move Forward With Xerox Merger Discussions

Scott Deveau

(Bloomberg) -- Carl Icahn is urging HP Inc. to push ahead with takeover talks with Xerox Holdings Corp., arguing the hardware maker’s standalone plans amount “to little more than rearranging the deck chairs on the Titanic.”

A tie-up between the companies could yield more than $2 billion in synergies, the billionaire investor said in a letter addressed to HP shareholders Wednesday.

“It is absurd for the HP board and management team, with such a history of underperformance and missteps, to claim to have had a sudden epiphany and now expect shareholders to trust them to execute a standalone restructuring plan,” Icahn said in the letter confirming an earlier report from Bloomberg.

HP last month rejected an unsolicited, cash-and-stock offer from Xerox worth $22 per share, or about $33 billion. Xerox plans to go to HP shareholders to present its case for a deal. Icahn, who owns stakes in both companies, said he was perplexed over HP’s board and management refusing Xerox’s proposal for mutual due diligence to explore a takeover.

HP’s decision to stonewall Xerox is also irrational and not in the best interest of shareholders, Icahn said.

“I can say without exaggeration that the combination of HP and Xerox is one of the most obvious no-brainers I have ever encountered in my career -- one where activism should not even be necessary at all because the merits of the combination are so obvious to everybody involved,” Icahn said.

The deal will likely get done but the process will stretch out for a little while, according to Anand Srinivasan, senior technology analyst with Bloomberg Intelligence.

“Partially, the reticence is the structure of the deal,” he said in an interview. “Who’s in charge? Who’s not? Who’s buying whom? The other part of it is to maybe push up the premium and play a little harder to get.”

Icahn urged his fellow shareholders to reach out to HP’s directors and let them know that immediate action is needed to explore this opportunity.

A representative for Xerox declined to comment. A representative for HP wasn’t immediately available for comment.

HP’s shares, which have fallen about 14% over the past year, rose 1.5% in trading Wednesday to C$19.93 a share as of 9:36 a.m. in New York. Xerox’s shares rose nearly 1%.

Icahn is the largest shareholder in Xerox, with a nearly a 11% stake. He also owns 4.2% stake in HP, making him its fifth-largest holder, according to data compiled by Bloomberg.

HP has said it’s open to exploring a deal, but only if it can do due diligence on Xerox. Xerox, in turn, has requested that HP opens its own books in order to proceed with the talks.

Icahn said he sees no downside to granting mutual due diligence. He also wondered whether HP was refusing the request as a delaying tactic so that its chief executive officer and board members could keep their jobs.

“I cannot believe that the recalcitrance of HP’s board is driven by any real confidence in its standalone restructuring plan, which the market, shareholders and analysts met with extreme indifference,” he said.

HP has argued the proposal undervalues the company. It also raised concerns about Xerox’s ability to raise the necessary capital and its debt load as reasons for not granting Xerox mutual due diligence.

(Updates with analayst comments in paragraph seven, share prices in eleventh paragraph.)

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Matthew Monks

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