Xerox CEO Resignation Rescinded
Shareholder Settlement Expired
In a surprise statement Thursday night, Xerox announced that the shareholder settlement made public on Tuesday had expired in accordance with its terms. The agreement with activist investors, Carl Icahn and Darwin Deason, called for the resignation of Xerox CEO, Jeff Jacobson, and six Xerox board members. According to Xerox, “the agreement would have become effective upon execution of stipulations discontinuing the Deason litigation with respect to the Xerox defendants. In the absence of such stipulations, the agreement expired at 8:00 p.m. ET on May 3, 2018.”
As a result, the previously announced changes to the current board of directors and management team have been rescinded. Likewise, the threatened $6.1 billion acquisition deal with Fujifilm may be back on track.
“Xerox and its Board of Directors recognize the uncertainty caused by the developments of the past several days among the company’s investors and other stakeholders. The Xerox Board and management team remain focused on driving continued improvement in financial and operational performance, and will consider all options to create value for the company and its shareholders.”
Icahn & Deason Clap Back
It should come as no surprise that Icahn and Deason tell a different story. According to the investors’ open letter, the Xerox Board would not consider the Deason litigation to be discontinued without “additional unprecedented protections from the court, which all parties (and the judge!) agree are not required under applicable law.” When the deadline passed without these protections satisfied, the Xerox Board announced the settlement expiration. Icahn and Deason go on to decry the Xerox Board’s actions as “intentionally violating their fiduciary duties to Xerox shareholders by pursuing their own brazen self-interest.”
The letter closes with the investors’ intention to see that the Xerox CEO and board are “held fully and personally liable for their misconduct. Similarly, [they] intend to see that Fujifilm is held fully liable as an aider and abettor of the continuing breaches of fiduciary duties by those directors.”
Xerox Board Releases Their Own Open Letter
Xerox released an open letter if their own on May 9th, giving the board of director’s side of the story and stating their intention to renegotiate more equitable terms in the Fujifilm agreement. The board argues that the Deason litigation unjustly gives voice to two shareholders – Icahn and Deason – while of effectively gagging all other shareholders by blocking their right to vote on the Fujifilm deal. They go on to explain that the Xerox board had understood that the lower court’s decision prevented them from renegotiating better terms with Fujifilm. With that information, they concluded the best course of action was to settle with Deason.
A few hours before the scheduled expiration of the Deason settlement, however, “the lower court made clear that Xerox could, in fact, negotiate alternative transaction structures with Fujifilm.” Following this revelation, the board states that Icahn and Deason contacted them, saying the investors would “let the settlement agreement expire and ‘go to war’ unless Xerox terminated its proposed combination with Fuji Xerox immediately.” Refusing to be pressured under this time limit and preferring to first attempt to renegotiate the Fujifilm agreement, the Xerox board allowed the settlement to expire in accordance with its terms.
Where Does This Leave Fujifilm?
According to Bloomberg Intelligence analyst, Simon Chan, in Hong Kong, “Now it’s just more uncertainty. We don’t know if the deal is back on. There’s something happening behind the scenes, which does not raise confidence in the deal or the company.”
“Fujifilm reiterated its call for the Xerox board to fulfill the deal agreement,” in a statement to Bloomberg. “The Japanese company is satisfied the U.S. court has ‘accepted our view of the importance of an open, orderly and transparent review process before any final decisions are made.'”
In the Xerox open letter, the board of directors affirmed their intention to “resume discussions with Fujifilm regarding a potential combination with Fuji Xerox on superior terms to the transaction announced on Jan. 31.”
Fujifilm, meanwhile, said in a statement it continues “to believe the transaction announced Jan. 31 provides the best value for the shareholders of Xerox and Fujifilm… If we receive a new proposal, we will need to study whether it offers value to the shareholders of Fujifilm. Needless to say, the plan must be rational and acceptable for the shareholders of both companies.”