Deason Alleges Xerox CEO Disregarded Board in Pursuing Fujifilm Deal

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Xerox CEO Jeff Jacobson

The battle between Xerox and activist investors Carl Icahn and Darwin Deason has become even more acrimonious, with new amendments to a Deason lawsuit alleging that Xerox CEO Jeff Jacobson pursued a deal with Fujifilm even after Xerox’s board advised him to stop negotiations.

The court papers, which are over 700 pages long, was filed against Jacobson, the Xerox board of directors, Fujfilm, and former Xerox CEO Ursula Burns, over the weekend.

Back in January 2018, Fujifilm of Japan and Xerox announced a deal  under which Fujifilm would purchase Xerox for $6.1 billion and obtain a 50.1-percent majority interest in the new combined Xerox-Fuji Xerox. The new combined company would be one of the largest, if not the largest, office-imaging companies in the world. Deason and Icahn oppose the deal, arguing that it under-rates the real of value of Xerox.

The 700-page-plus complaint  alleges that there’s been a 20-year agreement between Xerox and Fujifilm that “made it ‘virtually impossible’ for Xerox to sell itself to anyone other than Fuji.”  Deason further alleges the agreement was never disclosed to shareholders.

Deason also makes the assertion that, in May 2017, Jacobson has been “targeted for replacement by Xerox’s largest shareholder, Carl Icahn. In July 2017, the Xerox board unanimously determined that Jacobson was not the right leader for Xerox and initiated a search for replacement. Against this backdrop, the beleaguered CEO abandoned a value-maximizing all-cash transaction with Fuji and threw a ‘Hail Mary’ by proposing to Fuji the current deal.” Under the proposed Xerox-Fuji Xerox merger, Jacobson will be CEO of the new company.

By the fall of 2017, Deason alleges that the Xerox board had found a replacement CEO – with the name of the replacement CEO redacted in court papers – and claims that the Xerox board unanimously decided that Jacobson should discontinue talks with Fujifilm, as he was supposedly being replaced. The board supposedly informed the Xerox CEO that he was being replaced, and should discontinue talks with Fujifilm, but that Jacobson continued talks with Fujifilm.

In his new lawsuit, Deason also alleges that the Xerox board advised Jacobson in November 2017 to stop negotiations because it was considering firing him. The lawsuits were brought in the Supreme Court of New York.

Deason also alleges that the proposed Xerox-Fujifilm deal  was the result of a “fraudulently concealed ‘crown-jewel’ lock-up.” He argues that Xerox’s board could have ended its joint Fuji Xerox with Fujifilm two decades ago due to a recent  accounting scandal at Fuji Xerox New Zealand. Instead, he argues, Fujifilm now has permanent control of intellectual property, as well as the licensing, manufacturing, and selling of  products in the Far East and Pacific Rim markets.

Xerox denied the allegations in a statement it issued yesterday:

“Xerox CEO Jeff Jacobson was fully authorized to engage in discussions with Fujifilm and Fuji Xerox on the proposed combination,” said Xerox Chairman Robert Keegan.

He added that the lawsuit “distorts many of the facts regarding the proposed combination with Fuji Xerox.”

Deason and Icahn together hold about 15 percent of Xerox shares.

Deason also wants to nominate directors to the Xerox board, despite missing a deadline, and argues in his lawsuit that the current Xerox board had made a series of significant decisions and disclosures to stockholders after the nomination deadline. His separate complaint seeks to enable him to nominate directors in spite of missing the deadline for nomination, on the basis that the Xerox-Fuji agreement was also disclosed after the nomination deadline.

Our Take

As we know, anyone is free to file a lawsuit against anyone or any company at any time. Sifting through Deason’s over-700-page complaint, we found virtually all of the evidence supposedly supporting Deason’s contention that the board was replacing Jacobson redacted. One email message from Fujifilm’s head of strategy, Takashi Kawamura, to Jacobson.included in the lawsuit may allude to the board’s  alleged plan to replace Jacobson:

“If you cancel/postpone your trip to Japan due to your board’s direction, (Fujifilm’s CEO) would be very disappointed and may lose the momentum of the deal. We should be the one team to fight against our mutual enemy (Carl Icahn).”  The court papers also seem to indicate that Jacobson also pushed Fujifilm executives to tell Xerox’s Keegan that Fujifilm wanted Jacobson to be CEO of the new combined company.

According to The Hour, the Xerox board was supposedly considering a former IBM and HP executive, John Vistentin, to replace Jacobson. Last month, Icahn recruited Vistentin to help stop his bid to halt the proposed Xerox-Fuji Xerox merger.

“Citing unnamed multiple unnamed sources, the Wall Street Journal reported the Xerox board had eyed John Visentin as a possible successor to Jeff Jacobson, who was installed as CEO in January 2017 as the replacement for Ursula Burns, as Xerox spun off its business process outsourcing arm as Conduent.”

The complaint also refers to the president of another company making an inquiry about “combining” with Xerox, but again, the name of the president and company are redacted in court papers.

Xerox shareholders are scheduled to vote on approving the proposed merger sometime next month.

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