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Abu Dhabi, UAEWednesday 19 December 2018

Fujifilm to buy Xerox scuppered by judge

Ruling keeps the transaction from proceeding blocks Xerox from enforcing rules restricting board nominations

Fujifilm has been blocked from going ahead with its planned purchase of Xerox. Tomohiro Ohsumi/Bloomberg
Fujifilm has been blocked from going ahead with its planned purchase of Xerox. Tomohiro Ohsumi/Bloomberg

Xerox’s plan to sell itself to Japanese rival Fujifilm Holding was temporarily blocked by a New York judge who determined the chief executive officer behind the deal was trying to preserve his own job.

Investor Darwin Deason sued to block the transaction, accusing CEO Jeffrey Jacobson of acting without authorisation to strike a deal with Fujifilm that preserved his job at the expense of shareholder value. Xerox labeled that claim “highly disingenuous” and asked the judge to deny Mr Deason’s request for a court order blocking the deal.

Judge Barry Ostrager said in his order Friday that Xerox’s existing joint venture with Fujifilm would have made it difficult but not impossible to pursue another deal that would have required a buyer to provide a cash payment to Xerox investors.

The facts “clearly show that Jacobson, having been told on November 10 that the board was actively seeking a new CEO to replace him, was hopelessly conflicted during his negotiations of a strategic acquisition transaction that would result in a combined entity of which he would be CEO”, Judge Ostrager said. “There is ample evidence that he collaborated with Fuji to make himself indispensable to the transaction.”

Under the terms of the deal, announced in January, Xerox, which has a market value of $7.7 billion, would first merge with a joint venture that the company operates with Fujifilm in Asia. Current Xerox shareholders would receive a cash dividend of $9.80 per share. Tokyo-based Fujifilm would ultimately end up owning 50.1 per cent of the combined entity, which would expand the joint venture to encompass all of Xerox’s operations.

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Mr Deason, described in the ruling as Xerox’s third-largest shareholder with a $600 million stake, argued that the deal fails to maximise value for investors. Carl Icahn, identified in the order as Xerox’s largest shareholder, also opposed the deal.

Judge Ostrager’s ruling keeps the transaction from proceeding before a final ruling is made in Mr Deason’s lawsuit. The judge also granted a request to block Xerox from enforcing rules restricting board nominations, so that the investor can now notice a slate of directors for the company’s 2018 annual meeting.

A Xerox representative didn’t immediately respond to requests for comment after regular business hours.

Fujiflim is considering its options, including whether to appeal the decision, a spokeswoman for the company said.

“Xerox shareholders should be able to decide for themselves the operational, financial and strategic merits of the transaction,” she said. “Fujifilm negotiated with Xerox at arm’s length to create a transaction combining Xerox and Fuji Xerox that is the only option to provide shareholders of both companies with exceptional short- and long-term value.”

Xerox had argued in a court filing that Mr Jacobson didn’t have a conflict of interest and New York law didn’t allow Mr Deason and his lawyers at King & Spalding to second-guess the board’s business judgment.

“Jeff Jacobson has always conducted himself with the utmost integrity as CEO and in negotiations with Fujifilm,” Xerox’s board said earlier. “At no point did he exceed the authority granted to him by the board’s chairman or the full board.”