Xerox shares down 55%: František Bostl's CZK 300m bet hits trouble

Czech investor František Bostl, founder of the Starteepo investment group, has made a big bet on the comeback of the legendary Xerox brand. But after the third-quarter results, that bet took a heavy blow: since his first purchase, the company’s shares have lost about 55% of their value.

Xerox Corporation is an American maker of copiers and printers whose name became, in the 1990s, a synonym for the very word “to copy” in Czechia. Today, after a series of failed transformation attempts, the company looks more like a dying swan, according to Forbes. Investors distrust it because of its alarmingly high debt, and its market capitalization looks laughably low given its considerable revenue. That is exactly what attracted Bostl — the founder of Starteepo, an adviser to the Start market of the Prague Stock Exchange and a member of Forbes’ 2020 “30 under 30” list.

How the stake grew. In the spring, Bostl’s group invested about CZK 300 million in Xerox and, with a 5% stake, joined the four largest shareholders. The holding soon rose to 6%, and in September it was increased again: together with Bostl’s personal investment, Starteepo now holds about 7.3% of the company.

The activist role. The latest increase turned Starteepo into an activist investor. The fund presented Xerox’s management and board with its own plan to boost shareholder value. The main proposal is to sell, or at least partly monetize, Xerox’s attractive Xerox Financial Services (XFS) division, which finances equipment for customers. Starteepo estimates XFS could be worth $1.3–1.5 billion, or roughly $7.69 per Xerox share. The fund suggests using the proceeds to reduce debt and optimize the capital structure.

Separately, Starteepo supports the acquisition of Lexmark: it offers a chance to improve margins through cost synergies, but has also loaded Xerox with even more debt. Bostl believes that separate reporting for XFS would help investors better assess its assets, financing, credit quality and profitability. How Xerox’s management has responded is not yet known, and Bostl himself told Forbes that he cannot comment on current events around the American company.

The market’s reaction. After the third-quarter results were published on October 29, Xerox shares lost about 59.5% of their value. Measured from May 14, when Starteepo first invested in the company, the drop is roughly 55% — meaning the spring and summer gains have been wiped out entirely.

Why investors are nervous:

• the full-year operating profit forecast was cut from $555–605 million to $450–475 million;
• the free cash flow forecast was slashed from $250 million to $50–100 million;
• dividend payments on common and preferred shares were suspended — with net profit of $7 million, there is indeed almost nothing to share;
• Xerox plans to issue 3.9 million new shares to its current creditors, which will dilute existing shareholders.

There is a bright side too: third-quarter revenue came to $1.87 billion (about CZK 41 billion), so demand for the company’s services remains. But whether Bostl and his activist campaign can turn that base into growth in value remains an open question.

By the Around Prague newsroom