Xerox Responds to Deason Lawsuit that Seeks to Block Merger

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Yesterday, Xerox responded to a lawsuit filed by Darwin Deason in the Supreme Court of the State of New York, New York County, that seeks to block the proposed merger of Xerox with Fuji Xerox, and under which Fujifilm of Japan would gain a 50.1 percent controlling interest. Fuji, Xerox, current Xerox board members, and Ursula M. Burns, Xerox’s former chairman and chief executive officer are named as defendants in the lawsuit.

Xeros stated that the “allegations are without merit and the company will vigorously defend itself.”

Xerox also stated: “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.”

The proposed merger requires the approval of Xerox shareholders and approval by regulatory authorities.

This week, Xerox also published an extensive letter refuting allegations made by Deason and billionaire activist investor Carl Icahn in a letter to Xerox shareholders.

Deason’s complaint, which was filed on February 12, 2018, alleges that the Fuji-Xerox joint venture contains a “crown jewel lock-up right that allows Fuji to control Xerox’s intellectual property and manufacturing rights in the $36 billion Asia-Pacific market in the event Xerox were to sell to another suitor.” The suit also claims that this “lock-up was concealed from shareholders for 17 years until the recent transaction with Fuji was consummated.”

Yesterday, Deason and billionaire activist investor Carl Icahn published a joint public letter stating that the “scheme” dramatically undervalues Xerox and disproportionately favors Fujifilm. The transaction, they state, “has a tortured, convoluted structure, but it was best summarized by Shigetaka Komori, Fuji’s Chairman and CEO, when he boasted to the Nikkei Asian Review that the ‘scheme will allow us to take control of Xerox without spending a penny.’”

Fujifilm wouldn’t be paying cash for its controlling 50.1 percent interest in the new combined company – instead it would make the purchase by using the unrealized profit on its 75- percent interest in Fuji Xerox.

According to Icahn and Deason, they are “the first and third largest shareholders of Xerox, beneficially owning collectively over 40 million shares of the company’s common stock, constituting over 15 percent of the outstanding shares.”

Deason’s lawsuit states:

“The self-interested director defendants, however, ignored the opportunity or deliberately chose not to terminate the joint venture agreements. Had the director defendants terminated the joint venture agreements, they would have been able to engage in a fair and equitable bidding process and achieve a fair value and control premium for Xerox shareholders. Indeed, the value of Xerox as a standalone company with no encumbrances on its intellectual property and the licensing, manufacturing and selling of its products in the Asia and Pacific Rim markets is significantly greater than the value being provided to the company and its shareholders as part of the proposed transaction.”

Deason’s lawsuit also state: “The transaction must be stopped dead in its tracks…. The value of Xerox as a standalone company … is significantly greater than the value being provided to the company and its shareholders as part of the proposed transaction.”

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