Xerox hits back with threats over Fuji Xerox agreement

By Rhys Handley, Tuesday 26 June 2018

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In its latest salvo against Fujifilm, Xerox has threatened that it may not renew its technology agreement with Fuji Xerox and could look to replace products in its portfolio developed under the joint venture in the coming years.


Fuji Xerox is 75%-owned by Fujifilm and vends products in the Asia Pacific region

Coming in response to Fujifilm’s decision to sue Xerox for $1bn (£760m) in damages last week over the cancellation of the pair’s $6.1bn (£4.5bn) merger deal, Xerox chief executive John Visentin wrote to Fujifilm chair Shigetaka Komori yesterday (25 June) to blast the Japanese manufacturer for its legal action and to suggest Xerox may look to source its products from new vendor partners in the future, reducing its dependence on Fuji Xerox, and start selling directly into Fuji Xerox's Asia Pacific territories.

Xerox’s agreement with 56-year-old joint venture Fuji Xerox, which vends products to the Asia Pacific region such as the Xerox Iridesse production press, is up for renewal in 2021.

In his letter, recently-appointed Visentin wrote: “The litigation you filed against Xerox last week is nothing more than a desperate, misguided negotiating ploy to save a takeover that – as a result of the surreptitious actions of your team – to this day remains enjoined by order of the New York State Supreme Court.

“No matter what you tell the Japanese media, it is abundantly clear that the bad actor here is Fujifilm, not Xerox. Fujifilm, as 75% owner and controlling partner of Fuji Xerox, has concealed from Xerox the true extent of a massive and ongoing accounting fraud at Fuji Xerox caused by Fujifilm’s own gross mismanagement.

“In light of Fujifilm’s numerous contractual breaches and continued misconduct and bad faith in its dealings with Xerox (among other things), Xerox does not currently plan to renew the technology agreement when it expires in 2021.”

Visentin claimed that a “material portion” of Fuji Xerox’s revenue which comes from China has never been formally investigated for accounting fraud – a problem he said is “rampant” across the joint operation.

In response, Fujifilm simply called Visentin’s claims “wrong”.

Fujifilm corporate communications manager Mizuki Itou said: “The letter from Xerox Corporation is the first time we have heard from Xerox since we filed a lawsuit against them last week. Nothing they said in the letter is surprising to us.

“Fujifilm believes that Xerox breached its agreements with Fujifilm by making a unilateral decision to terminate without legitimate cause the agreements to combine Fuji Xerox and Xerox. We are confident that our assertion will be validated through the ongoing litigation.

“Xerox’s argument on Fuji Xerox’s accounting issue is wrong. The accounting issue at Fuji Xerox is properly resolved and no longer exists. Moreover, we have completed the audit in all of Fuji Xerox’s operating companies in its territory, including China, by more than one auditing company.”

Itou said Xerox’s suggestion that it could sell products directly to the Asia Pacific market was a “pretence” and that the company would find any attempt “extremely difficult” as it would be building new channels from scratch.

Both companies declined to comment on whether a deal could be salvaged between them.

Had the merger gone ahead, it would have seen Fujifilm transferring its 75% stake in Fuji Xerox to Xerox, in exchange for 50.1% stake in Xerox. Fujifilm would have then also paid a debt-funded $2.5bn ’special dividend’ to Xerox shareholders to reflect their reduced shareholding in the new, merged business.

It was scrapped by Xerox in May in response to pressure from activist Xerox investors Carl Icahn and Darwin Deason, after which Visentin was drafted in to head up a new board.

In a written response to PrintWeek, Xerox reiterated its intention to go it alone and break away from Fuji Xerox – but said serving the needs of Xerox customers would remain its priority.

Vice president of global public relations Carl Langsenkamp said: “Xerox will move forward on several fronts to protect our supply chain, source products from new vendors, and build partnerships with companies that are aligned with our mission of providing world-class technology, services and solutions.

“But we aren’t going to publicly discuss our strategy at this time. Our relationship with our customers has not changed. Xerox is fully committed to servicing and maintaining the products and solutions our customers have always relied on.

“Our portfolio of products includes offerings manufactured by Xerox, sourced from our contract manufacturers, and acquired from third party suppliers, including Fuji Xerox and others. Our focus has always been, and will continue to be, on our customers.”

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