It’s been a while since we checked in on the drama surrounding Fujifilm and Xerox, but the beat goes on. Reuters reported on Oct. 17 that Fujifilm Holdings Corp has won an appeal in its legal battles with Xerox Corp, with a New York court overturning preliminary injunctions that had blocked their planned merger. The ruling by the New York State Appellate Court could give Fujifilm leverage to bring Xerox management back to the negotiating table.

Fujifilm is also suing Xerox in a separate U.S. suit that seeks well over $1 billion, accusing it of breach of contract in abandoning the deal. Fujifilm said in a statement it stands by its view that the original planned merger remains the best option for the shareholders of both companies.

“(The) Court’s decision will allow us to discuss with Xerox the fulfillment of the original agreement. All Xerox shareholders ought to be able to decide for themselves the operational, financial, and strategic merits of the transaction to combine Fuji Xerox and Xerox,” it said.

Reuters notes that the appeal’s chances of success are unclear as Xerox’s new management, backed by Icahn and Deason, is opposed to the proposed merger. Analysts have said the only way for Fujifilm to gain any traction with Xerox now is to raise its offer.

From Fujifilm’s perspective, that doesn’t seem likely.

The heads of both Fujifilm and Xerox are standing firm in their positions. In a July 30 interview with Nikkei Asian Review, Fujifilm Chairman and CEO Shigetaka Komori said acquiring Xerox was “not indispensable” for his company. While the Fujifilm bid to acquire Xerox is still on the table, Komori says the firm will not compromise to do so. “We would not go as far as to raise our terms of acquisition, set in January, to realize the deal” he told Nikkei.

Meanwhile, Xerox says it is not conducting an auction process and its leadership feels optimistic about its future. CEO and Vice Chairman John Visentin made a point of that in the company’s Q2 earnings report and accompanying statement, released July 26. “While there has been much speculation about Xerox, I want to be clear,” Visentin said. “My mission is to do what is right for Xerox. Our focus is on leveraging the assets and capabilities we have today to create a sustainable company that provides a compelling value proposition for customers and partners.”

Visentin has been vocal in support of Xerox since he assumed the role. On June 25, Xerox announced that then-newly installed Visentin sent a letter to Fujifilm Chairman and CEO Shigetaka Komori responding to Fujifilm’s June 18 lawsuit. In the letter, Visentin calls the suit “a desperate and misguided negotiating ploy to save their takeover attempt” and announces Xerox’s intention to begin sourcing product from other suppliers. It’s just the tip of the iceberg in a letter that pulls no punches in addressing the issues between the two companies. A couple of days later, Komori responded in kind.

Let’s backtrack a moment, though, to June 18, when Fujifilm filed the long-promised lawsuit in a New York district court seeking “punitive damages for Xerox’s intentional and egregious conduct.” Fujifilm is seeking more than $1 billion in the suit, which far exceeds the $183 million “termination fee” the companies agreed upon if one of them walked away from the agreement — which Fujifilm also wants Xerox to pay, arguing that Xerox has deprived it of the benefits of the deal they struck.

Fujifilm is apparently willing to walk away from the deal, however; simply not without a fight. In a media session on June 7 in Tokyo, Fujifilm indicated it would walk away after about six months if no agreement could be made — in that session, CEO Shigetaka Komori said, “This is the time for our two companies to come together to lower costs, in this game of survival … [but] we are fine without a merger.”

According to the Wall Street Journal, Komori said that the $40-per-share cash price Icahn and Deason have said would be acceptable is “too high,” and that Fujifilm was not willing to consider an offer that would deplete its cash or require it to raise funds — clearly some of the appeal of the cashless deal so vehemently opposed by Icahn and Deason. “Fujifilm needs the money for other deals,” Komori said. Reuters reports Komori would give the deal around six months — “I don’t have a specific deadline in mind,” he said, “but it should normally be from several months to six months. If we have nothing by then, it can’t be helped.” Reuters elaborates on Komori’s statement that Fujifilm is fine without a merger, noting “Fuji Xerox – 75 percent owned by Fujifilm – can grow on its own, but Xerox depends on Fuji Xerox to produce almost all of the U.S. firm’s copier machines” — something we’ve discussed in depth here.

The June 25 letter from Visentin directly addresses that claim, noting “Nothing could be further from the truth. In fact, it is actually Fuji Xerox, which is responsible for nearly half of Fujifilm’s total revenue, that could potentially suffer ruinous consequences from the loss of over $1 billion of revenue from Xerox, its single largest customer. And legally, there is nothing Fujifilm can do to stop that from happening. The New York State Supreme Court has already enjoined Fujifilm from taking any action toward consummating the ill-advised takeover, and it follows that no court would allow Fuji Xerox to take adverse, punitive actions toward Xerox’s supply chain as we begin sourcing away from Fuji Xerox, which we are clearly permitted to do.”

Visentin expands on this statement, noting “Xerox does not currently plan to renew the Technology Agreement when it expires in 2021. We look forward to explaining to our investors the enormous potential growth opportunity if Xerox were to sell products directly into the growing Asia-Pacific market with sole and exclusive use of the valuable Xerox name and a more efficient, better managed supply chain than exists with Fuji Xerox. To that end, we are now moving to begin sourcing product from suppliers other than Fuji Xerox, and we intend to do so more and more in the months and years ahead.” Read the full letter here.

Fujifilm, it seems, would beg to differ with Xerox’s claims that it can operate without the Fuji Xerox agreement. In his June 27 response, Komori said, “While Xerox presently has no marketing facilities here in Asia-Pacific, we have global infrastructure that we can utilize for marketing worldwide. … It would be enormously costly and difficult for Xerox to gain business in Asia Pacific.”

Visentin’s letter also claims the “bad actor” in the contentious deal is Fujifilm, not Xerox, bringing up again the charges of accounting fraud among other issues. Komori’s letter stated he did not “intend to dignify every misstatement in your letter with a response.” However, he did address what he called Visentin’s “outrageous mischaracterizations of the past accounting issues at Fuji Xerox.” The letter closes by noting that “Your [Visentin’s] letter was sent without any prior communication from you and was actually publicized before it even reached me. This is impolite and wrong … .” Read the full letter here.

Need a little history to catch up?  On January 31, Xerox and Fujifilm that they were entering an agreement to combine Xerox with Fuji Xerox. You can read our initial story on the Xerox/Fujifilm announcement here and analysis of it here. Icahn and Deason apparently objected to the merger even before it was official, issuing an open letter on January 22 denouncing the Fuji Xerox joint venture and Jacobson. On February 13, Deason filed a lawsuit against Fujifilm Holdings Corp., Xerox, current Xerox board members and Xerox’s former Chairman and CEO Ursula M. Burns. The back-and-forth continued for a while in the form of open letters and statements until May 1.

On May 1Xerox announced the resignation of CEO Jeff Jacobson, to be replaced by Carl Icahn senior advisor John Visentin, and that six of the nine members of the Xerox board of directors had also resigned, replaced by a slate of directors aligned with Icahn.

On May 3, Xerox reversed the May 1 announcement and issued a release stating the current board and management — including Jacobson – would remain in place. The release was issued at 11:30 pm May 3 and stated, “the settlement agreement it had reached with Carl Icahn and Darwin Deason on May 1, 2018, has expired in accordance with its terms. As previously stated, 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.”

Just over an hour later Deason and Icahn issued a release announcing their letter to shareholders, in which they stated, “At 8:00 pm ET on Thursday night, the settlement agreement we entered into with Xerox and a unanimous Xerox Board earlier this week expired without the Xerox Board permitting the agreement to take effect, once again intentionally violating their fiduciary duties to Xerox shareholders by pursuing their own brazen self-interest. … The Xerox Board declined to take the actions they unanimously approved as in the best interest of Xerox shareholders unless they obtained additional unprecedented protections from the court, which all parties (and the judge!) agree are not required under applicable law.”

Read the Xerox press release and Deason/Icahn letter here.

On May 4, Xerox issued a release announcing its intention to appeal  the decision issued by Judge Barry Ostrager in New York’s supreme court, stating in part, “Xerox strongly believes that the decision is contrary to well-established New York law vesting the Board of Directors of Xerox with the business judgment to enter into the transaction agreement with Fujifilm (the “Transaction”) and that the decision to approve should rest with Xerox’s shareholders, not the Court.”

On May 7, Carl Icahn and Darwin Deason posted $150 million bond to preserve the preliminary injunctions against Xerox. They released another open letter to Xerox shareholders stating, in part:

“This morning we furthered our commitment to holding Xerox, its current board of directors and Fuji accountable for their egregious actions by posting a $150,000,000 bond to preserve the two preliminary injunctions issued by the New York State Supreme Court in the litigation brought by Darwin Deason against them. … We see several paths to victory – but none of them involve selling a 50.1% interest in Xerox in a deal that offers no control premium and leaves shareholders vulnerable to oppression by an overlord that is embroiled in an ever-widening accounting scandal. We are aware of the market speculation regarding a rival bid by Apollo and we are confident that other potential buyers are waiting in the wings to kick the tires – but we do not see any possibility of an alternative bid materializing unless and until the lame duck board and the lame duck CEO relinquish their death grip on Xerox. To put to rest the speculation regarding our intentions, we are comfortable stating that an all-cash bid at a minimum of $40 per share, would require our serious consideration. However, we also see the possibility of similar or better value in a standalone Xerox with John Visentin at the helm as CEO with the support of a new conflict-free board.“ Read the full letter on Icahn’s website. 

Later on May 7, in what the Deason and Icahn team touted a “win,” a request by Xerox to fast-track the deliberations in its appeal was denied. The case was calendarized for the first week of September.

On May 8, Xerox issued a letter from its board of directors to shareholders, noting that, “We stand at a strategic inflection point. Consistent with our duties to all Xerox shareholders, we intend to:

    • Resume discussions with Fujifilm regarding a potential combination with Fuji Xerox on superior terms to the transaction announced on January 31;
    • Continue to engage with all of our shareholders and ensure all shareholder voices are heard; and
    • Pursue our appeal of the lower court’s ruling in the Deason litigation, which we believe was wrongly decided and will be reversed.”

The letter also explained Xerox’s settlement agreement, and the surprising reversal of that agreement, stating that “we believed that the lower court’s decision prevented us from pursuing an enhanced deal with Fujifilm and effectively precluded us from securing maximized value for all shareholders,” but that in the days following the announcement its “shareholders spoke clearly … about Xerox’s prospects under an Icahn/Deason regime. Xerox’s share price fell over 12 percent … Then, at a hearing that concluded hours before expiration of the agreement, the lower court made clear that Xerox could, in fact, negotiate alternative transaction structures with Fujifilm. That afternoon, Mr. Icahn and Mr. Deason contacted the Xerox Board’s representatives and stated they would let the settlement agreement expire and ‘go to war’ unless Xerox terminated its proposed combination with Fuji Xerox immediately. The Board refused to be pressured into terminating the transaction agreement without careful deliberation and analysis. Based on these developments, we concluded that it was in our shareholders’ best interests to allow the settlement to expire in accordance with its terms.” Read the full letter here.

On May 10, Icahn and Deason announced an open letter to shareholders in response to the Xerox letter of May 8, stating that the Xerox letter “grossly misrepresents the facts about their conduct over the past year. Rather than ‘set the record straight’ as they claim to be doing, the Board’s letter is nothing more than an unconscionable attempt to deny clear documentary evidence proving that these directors have consistently put their own interests ahead of Xerox and its shareholders.” It goes on to outline a number of claims, followed by Icahn and Deason’s repudiation of those claims. Read the full letter here.

On May 13, both Xerox and the Deason/Icahn communications team sent out the press release from Xerox announcing “Xerox Terminates Transaction Agreement with Fujifilm and Enters into New Agreement with Carl Icahn and Darwin Deason.”

The press release announced that Xerox notified Fujifilm that the “previously announced transaction agreement to combine Xerox with Fuji Xerox is being terminated … due to, among other things, the failure by Fujifilm to deliver the audited financials of Fuji Xerox by April 15, 2018…” Thereafter, Xerox entered into a new settlement agreement with Carl Icahn and Darwin Deason. Under the terms of the settlement agreement, the following occurred:

    • Xerox appointed five new members to its Board of Directors: Jonathan Christodoro, Keith Cozza, Nicholas Graziano, Scott Letier and John Visentin.
    • Gregory Brown, Joseph Echevarria, Cheryl Krongard and Sara Martinez Tucker will continue to serve as members of the Xerox Board of Directors.
    • Robert J. Keegan, Charles Prince, Ann N. Reese, William Curt Hunter, and Stephen H. Rusckowski each resigned from the Board of Directors of Xerox.
    • Jeff Jacobson resigned from his role as Chief Executive Officer and as a member of the Board of Directors of Xerox.

As part of the agreement, Xerox and Carl Icahn would withdraw their respective nominations of any other director candidates for election at the 2018 Annual Meeting of Shareholders. Read the full release here.

On May 14, in response to the announcement, Fujifilm issued a statement saying,”Fujifilm disputes Xerox’s unilateral decision to terminate the transaction. … The proposed transaction, including its economic terms, was negotiated at arms’ length based on fair valuations and we continue to believe it is the best option designed to allow the stockholders of both companies to share the enhanced future value of the combined company with Fujifilm. Fujifilm will urge the Xerox board of directors to reconsider their decision.”

On May 16, Xerox officially announced that its Board of Directors had appointed Visentin as chief executive officer and that Visentin was elected vice chairman of the Board of Directors. Keith Cozza was elected chairman of the Board of Directors. Xerox also announced that it will hold its 2018 Annual Meeting of Shareholders on July 31, 2018. Read the full release here.

On May 18, during its earnings briefing, Fujifilm COO Kenji Sukeno said the firm planned to file a damages lawsuit as soon as possible. It took another month to do so, setting into motion the latest chain of events.

We will continue to update this story as warranted; bookmark this link for the latest.

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