Conduent Accuses Carl Icahn Of Board Takeover Attempt

Conduent board member and Icahn appointee Michael Nevin has resigned immediately and penned a scorching missive that blasts the “asleep at the switch” chairman of the board Bill Parrett.

Conduent said a “noisy resignation” letter from a disgruntled board member was part of a board takeover attempt by Carl Icahn that was aimed at replacing current chairman William Parrett.

Board member Michael Nevin resigned immediately from the IT service provider’s board on Monday publicly filing a laundry list of grievances with the SEC. However, in a follow-up filing, Conduent said the letter being filed is actually Icahn following through on a threat he made over the weekend to replace Parrett as chairman of the board.

“In discussions between Mr. Parrett and Mr. Icahn from Sunday, April 7, 2019, through Monday, April 8, 2019, Mr. Icahn indicated he could cause Mr. Nevin’s resignation letter not to be delivered to the Board and released publicly if Mr. Parrett agreed to immediately resign as Chairman so that a director designated by Mr. Icahn could replace Mr. Parrett as Chairman,” Conduent said in a filing. “Mr. Icahn also expressed his desire that Mr. Parrett resign from the Board and that a new director chosen by Mr. Icahn be added to the Board. We believe Mr. Nevin’s “noisy resignation” and these related discussions represent an attempt to take control of the Company’s Board.”

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In his letter, Nevin blasts the “asleep at the switch” chairman of the board Parrett as well as an “ill advised” decision of the CEO, all while lambasting management and the legacy business process outsourcing (BPO) provider’s declining value.

“My most important grievance with Bill, which I consider to be a major problem for the board and all shareholders, is that he seems uninvolved and appears to be willing to recommend that the board rubber stamp whatever management proposes – even though management has made a number of very disturbing and costly decisions over the last year,” Nevin wrote. “Chairman Parrett, and sad to say certain other members of this board, are the quintessential example of one of the biggest problems in corporate America today – too many directors simply do not give a damn.”

This is similar to what happened in December 2017, when another Icahn appointed board member resigned from Xerox, and Icahn rebuked the company in a public letter.

Nevin, an independent director who is also financial analyst at Icahn Enterprises, filed the letter with the SEC yesterday, but stepped down on April 8, and has already been removed from the company’s website. Most of his scorn is directed at Conduent Board Chairman Parrett, with some reserved for CEO Ashok Vemuri and his “ill-advised decision” to join the board of directors of Kroger.

“Ashok, with Chairman Parrett’s acquiescence, determined to take this board seat only a few short months after negative disclosures by Conduent resulted in the evaporation of almost half the company’s stock market valuation in a matter of weeks,” Nevin wrote in the letter. “How Bill could have missed or ignored this glaringly obvious red flag is a mystery. The only answer that makes any sense to me is that he was asleep at the switch, as he has been in so many instances during his tenure, or perhaps he was distracted by his myriad other responsibilities as a director of Oracle, Blackstone, Eastman Kodak and UBS Americas.”

For its part Conduent said Nevin’s letter “mischaracterizes” the company’s current state and its leadership.

“Under the Board’s oversight, the Company is focused on expanding margins, executing investments into the business to modernize enterprise applications and technology stack, improving client engagement and delivering quality services, in order to enhance its position for future value creation. Over the last 28 months since becoming a publicly-traded company, the Company has achieved a number of milestones, including key divestitures, completing a $730 million cost saving program, paying off almost $500 million of the Company’s 10.5% Senior Notes and the settlement of litigation with the State of Texas that was inherited at the time of Conduent’s spin-off from Xerox Corporation,” the company wrote. “We note that seven out of the nine members of the Board, including Mr. Nevin, have served as directors since the Company’s founding. During that time, virtually every decision by the Board and its Committees has been unanimously approved.”

According to Conduent’s filing with the SEC, Icahn is prohibited from waging a proxy fight over the company’s leadership.

“The Icahn Agreement, which includes customary standstill provisions, remains in effect. In accordance with the agreement, Carl Icahn and his affiliates are prohibited from running or supporting a proxy contest at the Company’s 2019 Annual Meeting of Shareholders and are required to support all directors nominated by the Company,” Conduent wrote.

Conduent did not respond to an email with follow up questions about Icahn’s alleged take over.

Nevin delivered a blow-by-blow account of his grievances with Conduent’s board and its management. Among them are: What he called “the failed processes at Conduent” to find a Chief Operations Officer.

“This is unquestionably a situation that screams out for Chairman Bill Parrett to assert his leadership position to prevent yet another hasty and ill-thought-out proposal from being rammed through. And yet he remains silent, allowing this important process that is so crucial for the future of Conduent to become a travesty.”

He also took on the costly legal battles the company is waging, singling out the $18 million the company has already spent fighting the State of Texas in a medicaid fraud suit that would have hit Conduent with $2 billion in damages, if, he says, he and other board members did not demand settlement talks. He chalked this loss up to Parrett as well.

“While he should have been leading the board in taking an extremely active role to remove this albatross, there seemed to be no settlement in sight until I and certain of my fellow directors inserted ourselves into the process,” Nevin wrote. “Once we did so, we insisted that serious settlement negotiations be initiated immediately. Within weeks, we achieved what couldn’t be accomplished in almost a decade – a $236 million settlement which removes this overhang, as well as the high legal fees that have seemed to be an annuity for the law firms handling the case.”

Nevin then turned to a $200 million acquisition of a company that Nevin called “an extremely dangerous” and carried the potential for Conduent to lose its entire investment.

“The proposed acquisition was far too large, aggressive and imprudent relative to Conduent’s battered enterprise value and in an area where the company has never operated or proven able to extract synergies,” he wrote. “Most importantly, a large portion of the target company’s earnings came from its ability to qualify for government contracts under a small business program. When asked to stay on for a period following the acquisition to ensure that the company would continue to qualify for these contracts, the CEO of the target company refused, making it clear that purchasing this company would be bordering on ridiculous.”