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Carl Icahn Stuck In The 80s

Carl Icahn wants to take this dying tech company, Xerox (XRX), and do what exactly? Perhaps turn it into the next Hewlett-Packard. But maybe that’s what the market is missing here? Is there more value to Xerox broken up?

First, we have to talk turkey.

Recently, a strategy that has become popular in the activist playbook is mass share buybacks that help give CEO get a boost in bonuses. Gone are the days of base salary being the majority of executives pay, currently it’s based off of how well share prices are doing. This has helped tie executives and activist investors together to work towards the same goal. 

But is all this hurting business’ bottom lines? Where, even though profits are declining, EPS targets are being met and CEOs are getting fat payouts. 

A key example is at Xerox. This year their net income and revenue both declined, but they had an EPS target of $1.12, which was hit after managers orchestrated $1.1 billion in share buybacks. CEO Ursula Burn’s received a $1.98 million bonus thanks to these shenanigans. Xerox bought back the majority of these shares in the first three-quarters of the year. 

The Activist Role

Carl Icahn now has an ~8.1% stake in Xerox after upping it from 7.1% this week. He has plans of discussing some short and long-term ideas with the board. The company is in the midst of turning itself around as their main business model could be left in the dust during the digital age. Icahn is no fool, and apparently thinks there’s still value in the company. 

No matter what people think of Ursula’s leadership, she’s either in Icahn’s good graces or crosshairs with the buybacks. I doubt he’ll take issue with the compensation and rather commend Xerox on the buyback efforts. Icahn’s (likely) end goal here is to push Xerox into becoming more like HP — separating out its two businesses.

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