The Miami Firefighter Relief and Pension Fund (MFRPF) has filed a lawsuit against Carl Icahn and his affiliated investment vehicles, alleging they breached their fiduciary duty of loyalty by purchasing $1.2 billion of HP Inc. common stock with knowledge that Xerox was intending to buy the stock at a premium price soon afterwards, subsequently generating a substantial profit for Icahn.
The pension said that Icahn “effectively controls Xerox based upon being its largest single shareholder,” and has been active in his responsibilities, including replacing at least five out of the seven board members, selling subsidiary organizations, replacing the company CEO, and threatening proxy contests.
“Icahn is party to a confidentiality agreement with Xerox pursuant to which he and his affiliates receive non-public information regarding the company,” the pension said.
On April 25, 2019, Xerox CEO John Visentin said during a call with analysts that “we’re never going to comment on the potential targets. But we’re building a deep M&A pipeline that will support our revenue road map.”
The nonconfidential portions of Icahn’s June 30, 2019, disclosure with the SEC shared that Icahn held no HP common stock at the time. Icahn is the founder of Icahn Enterprises, chairman of Federal-Mogul, a developer of powertrain components, and former advisor to President Donald Trump.
Xerox sent a letter to HP’s board of directors on November 5, 2019, offering to buy the company for $33.5 billion. HP’s stock jumped from $18.40 to $21.64 per share when news of the offer went public.
The Miami Firefighter’s pension asserts that Icahn breached his contract of confidentiality with Xerox, and deprived the company of the benefit of its bargain by buying such a large amount of shares before the acquisition. “[Icahn was] enriched at Xerox’s expense,” the lawsuit says. “It is against equity and good conscience to permit [Icahn] to retain any profits made, or dividends received, from investing in HP common stock.”
“Permitting [Icahn] to retain the HP common stock [he] acquired and any dividends received appurtenant thereto is unjust, in light of circumstances, under equitable principles of New York law.”
Icahn and affiliated defendants’ ownership of HP common stock rose in market value by approximately $128 million after news of the potential acquisition went public. They were entitled to dividends of approximately $11 million on or about January 2, 2020, bringing their total profits from acquiring HP stock to roughly $140 million.
“The wrongful acts [executed by Icahn] have caused harm to Xerox and will continue to subject Xerox to harm because the adverse consequences of the injurious actions are still in effect and ongoing,” the pension said.
Speculation of insider trading was in part originated when Gordon Haskett analyst Don Bilson said that an activist investor could be targeting HP common stock because of a huge spike in recent trading volume came about despite the lack of an obvious catalyst.