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Insurgents Part Ways With Targets Through Block Trades

Published: June 28th, 2024
Corporations will at times buy a large dissident investor’s stake, which can be beneficial to companies, activists and other holders if they are struck at an appropriate price — otherwise call it greenmail.

On June 10, Conduent Inc. (CNDT) agreed to buy out Carl Icahn’s 18% stake for about $123 million and simultaneously watched three directors employed by the insurgent investor resign.

The one-time repurchase and director shakeup represent the end of an era for Icahn and the business processing company and former Xerox Inc. (XRX) unit. In 2015, the corporate raider turned activist first pressured Xerox to spin off Conduent, which it did the next year. As part of a Icahn-Xerox agreement in 2016, the company and Icahn replicated the settlement at the divested business.

The Conduent-Icahn repurchase deal is also an example of a strategy employed by companies and activists seeking to liquidate insurgent positions, in transactions that can be beneficial to companies, activists and the rest of the shareholder base if done at the right time and at an appropriate price.

Price is Right

How much a company pays to buy the stake is a key factor in determining if other shareholders will view the transaction positively or negatively, as in some cases, one-time deals with activists can be considered a form of greenmail at the expense of rank-and-file investors.

A large one-time buyback of an activist’s stake, when that fund is agitating publicly for change, pushing a director contest or has an unsolicited bid on the table, at a significant premium to market prices would be considered greenmail, which is money paid to stop aggressive behavior.

However, large repurchases aren’t considered greenmail if they are acquired at market prices, such as the share closing price the last business day before the deal is announced, advisers explained.

At Conduent, a special director committee recommended that the company’s board accept the repurchase plan announced Monday, June 10, at a purchase price of $3.47 a share — Friday’s closing price. As Icahn didn’t receive a premium to a recent share price, the deal is unlikely to offend other investors worried about the billionaire getting a better result.

“If you are taking the stockholder out at market prices, it could be beneficial to the broader shareholder base,” said an adviser to companies targeted by activists.

Activists and companies should agree to transactions at recent market prices to avoid the perception they are accepting greenmail, said Andrew Freedman, of Olshan Frome Wolosky LLP.

Editor’s note: The original, full version of this article was published June 14, 2024, on The Deal’s premium subscription website. For access, log in to or use the form below to request a free trial.

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