STARTEEPO Invest, a Prague-based alternative investment fund, has significantly increased its stake in Xerox Holdings Corporation, now holding 8.8 million common shares and options on an additional 140,000 shares, making it the second-largest common shareholder. This increased position reflects STARTEEPO's intent to be an engaged, long-term shareholder, with its investment thesis centered on improving Xerox's balance sheet, ensuring disciplined capital allocation, executing operational improvements, and successfully integrating Lexmark.
The fund believes that Xerox is undervalued by the market and sees significant potential in the company's long-term strategic positioning, particularly as enterprises increasingly adopt AI technologies. STARTEEPO plans to actively engage with Xerox's management, board of directors, and other stakeholders to discuss the company's strategy, capital structure, and operations, aiming to enhance shareholder value. This comes after an initial disclosure of a 5.05% stake (6.6 million shares) that caused Xerox's shares to spike between 7% and 12%.
Xerox, despite being a legacy print and document services vendor, is attempting a pivot towards services and software. Its financial fundamentals are weak, with a negative EBIT margin, deeply negative ROE, and negative free cash flow in Q1 2026, alongside extreme leverage. However, the company projects revenue above $7.5 billion and free cash flow of approximately $250 million for the full year 2026, offering a potential catalyst for investors.
STARTEEPO's increased stake and activist-leaning posture are seen as the primary near-term catalyst for Xerox. The company's maintained $0.025 quarterly common dividend and $20 quarterly preferred dividend signal a commitment to capital returns despite weak cash generation. The market views Xerox as a high-risk, highly leveraged deep-value special situation, with its stock trading at about 0.04 times sales and 0.37 times book value, indicating a heavy market discount.
STARTEEPO also highlights the potential of a recently announced warrant structure to accelerate deleveraging. As Xerox's share price appreciates, warrant exercises could issue new equity capital, reducing outstanding debt obligations. The market has not fully appreciated this mechanism's long-term implications for improving Xerox's capital structure.
