Carl Icahn Becomes Xerox's Second Largest Shareholder

Xerox has struggled for years with shrinking sales of printers and copiers. Now the 109-year-old company has a new challenge: Activist investor Carl Icahn has taken a big stake and is trying to shake things up. Mr. Icahn disclosed Monday that he has accumulated a 7.1% stake in Xerox, saying the company is undervalued and he may seek board seats. Xerox shares, which had fallen 22% so far this year as of Monday's close, rose 7.1% in after-hours trading to $11.51. Mr. Icahn's disclosure comes a month after Xerox said it would launch a review of its business. After Xerox posted its first quarterly loss since 2010, the company's chief executive, Ursula Burns, said on Oct. 26 that "undertaking a comprehensive review of structural options for the company's portfolio is the right decision at this time." Xerox spokesman Sean Collins said Monday the company welcomed open and constructive dialogue with shareholders. "Our board and management team are committed to improving performance and creating value for shareholders and will continue to take the actions to advance these objectives," he said. Despite several initiatives aimed at moving beyond its traditional office equipment roots, Xerox's revenue has been shrinking for years. The company, which had nearly $20 billion in revenue last year, ended Monday with a market value of about $10.6 billion. Ms. Burns, a Xerox veteran who has run the company since 2009, has tried to transition into a services-based business that handles the back-office operations for companies and governments. Document management, bill processing and other services made up 56% of the company's top line during the nine months through Sept. 30. Her boldest move was the $6.4 billion acquisition of Affiliated Computer Services, which had a big business providing work for state Medicare and Medicaid agencies. The deal added about 74,000 people to Xerox's then-workforce of about 54,000. Mr. Icahn's stake would make the activist hedge-fund manager the second-biggest holder of Xerox shares behind institutional holder Vanguard Group, according to FactSet data. Mr. Icahn said in a securities filing that he intends to hold talks with Xerox's management and board concerning "improving operational performance and pursuing strategic alternatives, as well as the possibility of board representation." The activist typically builds his stake in secret before reaching out and disclosing his ideas. Xerox will add to Mr. Icahn's current plate of big-name U.S. companies, as Monday he increased the pressure on insurance giant American International Group, where he has a $2.6 billion stake and is urging a breakup. AIG says his analysis is flawed. Mr. Icahn is investing considerably less for his wager on Xerox. According to a regulatory filing, his firm spent $86.5 million to purchase 8.2 million Xerox shares and paid another $160 million for forward contracts to buy another 64 million shares for $512.5 million. Still, his presence adds urgency to the ongoing review by the Xerox board, whose eight members include Charles Prince, the retired CEO of Citigroup, and Stephen Rusckowski, the CEO of Quest Diagnostics. Ms. Burns, who joined Xerox in 1980 as an intern and worked her way up to the corner office, is the board's chairman. Last month, Ms. Burns said the strategic review was in its early stages but that a sale of the company wasn't being considered. "I really can't get into any more detail because we haven't progressed that far," she said on an earnings conference call with analysts and investors. After Xerox announced its strategic review, Standard & Poor's Ratings Services revised its outlook on the company to negative from stable. It currently rates Xerox's debt at BBB, the second-lowest investment grade. Mr. Icahn's approach also comes at a time that the company is operating with an interim chief financial officer. In October, the company's finance chief, Kathryn Mikells, left to join beverage company Diageo. Xerox is searching for a permanent replacement. David Benoit contributed to this article. Write to Josh Beckerman at josh.beckerman@wsj.com and Drew FitzGerald at andrew.fitzgerald@wsj.com