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Xerox shareholder sues to block Fujifilm deal

Wednesday, 14 February 2018
By Print 21 Online Article
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Major Xerox shareholder Darwin Deason has filed legal action to stop the company’s merger with Japan’s Fujifilm Holdings, claiming the U.S. company’s board failed shareholders by approving a deal that undervalues the company.

“Do not let Fuji steal this company from us’: Xerox shareholder Darwin Deason. 

Deason, Xerox’s third-largest individual shareholder, said in a filing with the US Securities and Exchange Commission that the Fujifilm deal was a result of an agreement made between the two companies in 2001 that was “fraudulently concealed” from investors.

The lawsuit is the latest move in Deason and fellow shareholder Carl Icahn’s fight to stop Fujifilm from taking over Xerox in a proposed $6.1 billion deal that would see Fujifilm combine Xerox with existing joint venture Fuji Xerox.

The deal includes a $US2.5 billion special dividend to all shareholders, which would equate to around $US242,500,000 for Icahn Enterprises and about $US150 million for Deason.

In an open letter to fellow shareholders, the activist shareholders, who own 15 percent of the U.S. printer and copier maker, said the “tortured” agreement dramatically undervalued Xerox:

We urge you – our fellow shareholders – do not let Fuji steal this company from us.

Last week, Xerox and Fuji announced a scheme to transfer majority ownership and control of Xerox to Fuji in a transaction that dramatically undervalues Xerox and disproportionately favors Fuji. The transaction has a tortured, convoluted structure, but it was best summarized by Shigetaka Komori, Fuji’s Chairman and CEO, when he boasted to the Nikkei Asian Review that the “scheme will allow us to take control of Xerox without spending a penny.”

The letter said “failures at Fuji led to the massive accounting scandal” at Fuji Xerox subsidiaries in Australia and New Zealand.

Even a cursory review of these documents lays bare a critical fact that Xerox has hidden from its investors and the market for the last 17 years (yet, curiously enough, now uses to justify why we have no choice but to accept this deal) – the joint venture agreements severely limit Xerox’s ability to pursue transformative strategic transactions (both on the buy side and sell side). That critical fact is the primary reason why last year’s massive accounting scandal at Fuji Xerox is so significant – it presents by far the best opportunity to date (as far as we can tell) Xerox has ever had to get rid of this albatross. Because the myriad failures at Fuji that led to the massive accounting scandal almost certainly rise to the level of being a material breach of the joint venture agreements, Xerox could and should exercise its rights to terminate the agreements effective immediately, thereby gaining for itself unfettered access to a $36 billion Asia-Pacific market, including sole right to use the Xerox name and intellectual property in the region. It would be catastrophic for Fuji’s printing business and a fantastic opportunity for Xerox to expand for its own benefit.

Xerox accused Icahn and Deason of spreading “misleading and inaccurate information.” 

In a statement from the company’s Connecticut corporate office, Xerox said the deal followed a “year-long comprehensive and exhaustive review of value-enhancing alternatives available” and “delivers significantly more value to Xerox shareholders.

“The agreement is a binding legal document that cannot be simply wished away, renegotiated or dissolved because Mr. Icahn and Mr. Deason desire it so,” the statement said. “Mr. Icahn and Mr. Deason fail to provide an actionable plan or any cogent ideas to make their scheme a reality. Following their playbook would be both highly irresponsible and unlikely to succeed.”

Fujifilm, valued at $20.6 billion, said in a separate statement that the planned deal “represents compelling strategic and financial value for Xerox shareholders.”

Fujifilm currently owns 75% of Fuji Xerox, a joint venture launched more than 50 years ago. Under the proposed deal, Fuji Xerox would buy back that stake from Fujifilm for around $6.1 billion and Fujifilm would use those proceeds to buy 50.1 percent of new Xerox shares.

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