Fortune - 04.2020

REAL MONEY

11% stake, worth about $750 million;

he also owns 4.4% of HP, worth some

$1.3 billion. Icahn led a campaign in

2018 that blocked Japan’s Fujifilm

Holdings from purchasing Xerox. He

then backed a new management team

headed by Visentin, who became Xe-

rox CEO that May. Icahn claims that

a combination promises huge gains

for both sides. “I want to own the

stock of the merged companies,” he

tells Fortune, “and Visentin is a tough

guy and the right guy to run it.”

If Xerox wins the proxy battle, a

new HP board will likely approve the

deal. But HP may persuade its share-

holders to rebuff Xerox, or even turn

around and buy Xerox—a deal pro-

posed by, among others, Carl Icahn.

Whatever the outcome, Visentin’s bid

could shake up a backwater of the

tech world by highlighting a strategy

that has revived mature industries

from autos to airlines: consolidation.

P

RINTERS MAY BE unglam-

orous, but they’re also a

$206-billion-a-year indus-

try. Though revenues are

shrinking as clients turn to

digital documents, those

boxy appliances produce enormous

cash flow, as customers keep paying

for years for paper, maintenance, and

pricey toner cartridges.

The field encompasses 12 major

players, including HP, Xerox, and

eight Japanese companies. Mergers

could offer this gaggle some advantag-

es: Combined, companies could slash

costs by reducing headcount and win-

ning lower prices on outsourced parts

and services. They would then have

more cash to invest in faster-growing

arenas, including 3D printing and

customized digital printing.

If such a strategy succeeded, it

could pay off disproportionately for

investors. HP and Xerox trade at a

dirt-cheap 7.5 and 5.4 times free cash

flow, respectively, reflecting investors’

belief that they’ll keep shrinking. The

average multiple for the S&P 500, by

contrast, is 19, and a growth surge

could help their shares close that gap.

Boosters of an HP-Xerox merger

point out that each focuses on dif-

ferent parts of the market. HP’s

$20.1 billion printing business spe-

cializes in desktop printers, a category

called A4s. Xerox relies mostly on A3s,

the huge multipurpose models used

by businesses. In most cases, it leases

them on contracts through which it

provides supplies and maintenance.

Last year, Xerox produced free

cash flow of $1.3 billion and HP of

almost $4 billion. Visentin argues

that he can produce $2 billion in new

yearly savings—and the healthier

margins and investment oppor-

tunities that come with them—by

combining Xerox and HP. At Xerox,

15%

COMBINED SHARE

OF XEROX STOCK

CONTROLLED BY

CARL ICAHN, 84, AND

DARWIN DEASON, 80

$20.1

BILLION

ANNUAL REVENUE

OF HP’S PRINTER

DIVISION (FOR

FISCAL YEAR

ENDING 10/31/19)

$24

BILLION

DEBT THAT XEROX

WOULD INCUR TO

ACQUIRE HP

SOURCE: COMPANY

FILINGS

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