Merger threatened by investor dissent

Jo Francis
Monday, February 19, 2018

Fujifilm boss Shigetaka Komori has considerable form when it comes to taking on seemingly insurmountable challenges.

In his book – Innovating Out of Crisis: How Fujifilm Survived (and Thrived) as its Core Business was Vanishing – he details his efforts to transform the fortunes of Fujifilm in the days when its core analogue film market was rapidly disappearing, Komori talks about Fujifilm’s “relentless pursuit” of then arch-rival and market leader Kodak, which the Japanese manufacturer overhauled just as worldwide sales of film started to fall. “This is how a battle began that I couldn’t afford to lose, a battle that I would throw myself into body and soul. My task was to save the company,” he states, without exaggeration. 

Now, nearly 20 years on, the 78-year-old Komori faces another battle, this time with some extremely vocal shareholders at Xerox who want to stymie Fujifilm and Xerox’s plans to create a new industry giant by way of a mega-merger that would combine Xerox and their Fuji Xerox joint venture. 

High-profile billionaire investor Carl Icahn had already gone on the offensive at the end of last year, calling for the head of Xerox chief executive Jeff Jacobson and other board members because he was unhappy about the group’s performance and strategy, less than a year into its existence as a standalone business after Xerox split itself into two.

Icahn is never short of a vociferous viewpoint, and his stance on Xerox resulted in an open letter to other shareholders asking them to join him in demanding new blood in the Xerox boardroom. 

Then, out of leftfield, came the proposed Fujifilm takeover: Fujifilm would acquire Xerox in a $6.1bn (£4.3bn) deal that would involve a special dividend of $2.5bn for Xerox shareholders. Xerox would be combined with Fuji Xerox to create a new $18bn-turnover company that would leapfrog rivals Canon and Ricoh and be on a par with HP in terms of size. 

The stated benefits would include greater R&D resources and worldwide sales clout, with Jacobson, who is set to become chief executive of the new entity, lauding the deal as creating a new Xerox that would be “dramatically stronger and more competitive”.

And for Fujifilm it looks like an absolutely great deal because the group doesn’t have to find any actual cash to fund it, because it can use the unrealised profit on its 75% stake in the joint venture.

After the news broke there was an uncharacteristic silence from Icahn that stretched out to almost a fortnight. Clearly the veteran investor was going through the details of the proposals with a fine-toothed comb. And it transpired that indeed he was. Together with another activist investor Darwin Deason (the duo have a combined stake of more than 15% in Xerox), earlier this month Icahn penned another open letter to shareholders, denouncing the proposed takeover deal as a bad deal over the course of 2,000 words. 

Up until that point Xerox had opted not to trade public blows with its largest individual shareholders, but the open letter brought the fight out into the open. In its own 1,800-word rebuttal, the corporation rejected every one of Icahn and Deason’s claims as “false”. 

Opposing views

For both sides, much hinges on the existence of the Fuji Xerox joint venture, which found itself at the centre of an embarrassing accounting scandal last year. 

For Icahn and Deason it is “an albatross” but for Xerox and Fujifilm the JV is actually central to the deal, and what’s more there has not been a rush of potential alternative purchasers. The Xerox rebuttal states: “Inherent in Mr Icahn’s and Mr Deason’s statement is the assumption that Xerox is foregoing a more attractive control premium than an unidentified third party may someday be prepared to pay... We believe the existence of the Fuji Xerox joint venture negatively impacts value in any other merger transaction. More likely, it would simply make such a transaction unattractive to any other strategic buyer. It is also not something that needs speculation: since the public speculation of a potential transaction with Fujifilm on January 10, 2018, no potential strategic buyer contacted Xerox, or its advisors, with any credible proposal or alternatives.”

As PrintWeek went to press, the latest salvo involved Deason filing a lawsuit in an attempt to block the deal altogether, citing “fraud and breaches of fiduciary duties”. He included Xerox, Fujifilm, the Xerox board of directors and also former Xerox chairman and chief executive Ursula Burns in his action, which has been dismissed as being “without merit” by Xerox. 

Currently, the only sure thing about this high-profile corporate fall-out is that the lawyers and advisers involved will do very nicely indeed as a result. 

Within the space of just a couple of months, the fight for control of Xerox has already involved enough plot twists for several new chapters should Komori choose to pen another book. Watch this space for what happens next. 

Fujifilm and Xerox: history and recent happenings

1962 Fuji Photo Film and Rank Xerox establish 50:50 joint venture, Fuji Xerox

2001 Fuji increases stake in Fuji Xerox to 75%

2016 Xerox announces plans to split into two separate businesses: the Xerox document technology wing and newco Conduent, the business process outsourcing operations 

2017 Xerox separation becomes official on 4 January

2017 Accounting scandal at Fuji Xerox in New Zealand and Australia is uncovered totalling ¥40bn (£267m) of which Xerox’s share of the resulting hit is around $90m.

2017 Activist Xerox investor Carl Icahn calls for wholesale changes at the group’s board

Jan 2018 Fujifilm and Xerox announce plans for Fujifilm to acquire Xerox and merge it with Fuji Xerox, in $6.1bn deal that will create an $18bn company. Fujifilm will have majority stake of 50.1%

Feb 2018 Icahn and Darwin Deason, who together hold a 15.2% stake in Xerox, publicly oppose the deal. Deason files a lawsuit with the aim of blocking the deal


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