Xerox investor files lawsuit in attempt to stymie deal

Fujifilm's proposed takeover of Xerox has taken yet another twist, with activist investor Darwin Deason filing a lawsuit in an attempt to block the deal, while Xerox countered by describing the legal action as "without merit".

Billionaire Deason sold his Affiliated Computer Services business to Xerox in 2010 for $6.4bn (£4.6bn) and is Xerox's third-largest shareholder. Together with Xerox's biggest individual shareholder Carl Icahn, he had already penned an open letter to Xerox shareholders urging them to reject the takeover deal.  

Fujifilm is proposing to take over Xerox in a $6.1bn deal, and combine it with existing joint venture Fuji Xerox to create a new $18bn turnover business.

Yesterday (13 February), Deason filed a lawsuit against Xerox, Fujifilm Holdings, Xerox's current board of directors, and also Ursula Burns the former Xerox chairman and chief executive who stepped down as chairman in May 2017.  

The lawsuit states that Deason, for the benefit of all Xerox shareholders, seeks to enjoin [prohibit] the proposed Fujifilm takeover of Xerox and the existing Fuji Xerox joint venture "on the basis of fraud and breaches of fiduciary duties".  

In his complaint, Deason lays out a number of allegations relating to the long-standing Fuji Xerox joint venture. The lawsuit states: "The Xerox/Fuji transaction is the result of an improper and fraudulently concealed 'crown jewel' lock-up agreement that Xerox entered into with Fuji 17 years ago, that was never disclosed to Xerox’s shareholders before the signing of the Xerox/Fuji transaction. The 'crown jewel' lock-up agreement precludes a transparent and fair process for the potential sale of Xerox. Despite its duty to do so, Xerox’s board fraudulently never disclosed the 'crown jewel' lock-up." 

Deason also says that the accounting scandal uncovered last year at Fuji Xerox's New Zealand and Australia operations "gave Xerox the right to terminate the crown jewel lock-up provision, but the Xerox board failed to terminate the provision". 

"Deason seeks to enjoin the transaction, terminate the Xerox/Fuji joint venture lock-up and joint venture agreements and pursue strategic alternatives for Xerox," the lawsuit concludes. 

In response, Xerox issued a statement saying that the lawsuit was "meritless". 

"Mr Deason’s allegations are without merit and the company will vigorously defend itself," Xerox said. "After having considered all strategic alternatives available to the company, Xerox’s board of directors remains steadfast in its belief that the combination with Fuji Xerox is the best path to create value for the company and its shareholders.   

"It is unfortunate that Mr Deason is seeking to interfere with Xerox shareholders’ right to decide and is relying on meritless legal claims. Xerox has fully disclosed the joint venture agreements, and the company will respond to Mr Deason’s legal claims through the appropriate legal channels in due course." 

A spokesperson for Fujifilm told PrintWeek that the company did not have any comment to make on the lawsuit.  

It is not the first time that Deason has sued Xerox after objecting to a proposed deal. In 2016 he launched a lawsuit aimed at halting the plans to split Xerox into two separate entities because it would dilute his shareholding. 

Xerox subsequently agreed a settlement whereby Deason received 180,000 shares in Xerox, and 120,000 shares in the spun-off BPO business, Conduent. 


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