Court Papers Show Conflicted Xerox Board

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Bloomberg reports that Xerox “was a company racked by infighting, rogue decision-making and dishonesty as it raced to sell itself to Japanese rival Fujifilm Holding Inc., according to claims detailed in new court filings.”

The amended complaint, filed last week in New York State Court by Xerox investor Darwin Deason, contains some portions of correspondence, some of which had been previously redacted.

Deason argues that Xerox CEO Jeff Jacobson “acted without authorization” to negotiate a deal with Fujifilm, a deal that is is said to have “preserved his job at the expense of shareholder value. Xerox has called this allegation “highly disingenuous,” and has asked the court to deny Deason’s request for a court order blocking the merger. Under the proposed Xerox-Fuji Xerox merger, Xerox CEO Jacobson would be CEO of the new combined Xerox-Fuji Xerox.

 Deason has alleged that last year, the Xerox board has sought to replace Jacobson, Documents revealed in court include a December 2017 letter written by Xerox director Cheryl Krongard to Xerox Board Chairman Robert Keegan in which Krongard called Jacobson a “rogue executive” who disobeyed the board to secretly negotiate a deal with Fujifilm.

Also in the ltter, Krongard wrote: “This board exhausted every ounce of patience and coaching to make our current CEO a success. We then decided, unanimously, for a variety of reasons, he was not the leader we need.” Krongard added that Xerox had identified a CEO replacement who, she says, Keegan had said was “head and shoulders better than Jeff.”

The letter continued: “Jeff was told by you, as directed and supported by the board, that the board was disappointed by his performance and would likely look at outside talent. Additionally, you told him in no uncertain terms, that he was to discontinue any and all conversations with FX and F regarding Juice. He blatantly violated a clear directive.” “Project Juice” was the code name for discussions involving the proposed sale of 50.1 percent of Xerox for $6.1 billion and Xerox’s proposed merger with Fuji Xerox, the decades-old joint venture between Xerox and Fujifilm. F and FX refer to Fujifilm and the Fuji-Xerox joint venture, respectively.

Later on, Krongard wrote: “Jeff has put us, and mostly you, in a horrible situation. He is asking us to lie! In my most heartfelt and emotional outreach to you, I implore you not to let this happen! Were it I, I would contact Shigetaka Komori [Fujifilm CEO] personally and bow as low as possible (figuratively) and tell him of our rogue executive’s behavior and beg his forgiveness. Simultaneously, we need to get new leadership ASAP.”

Xerox Response

In response, a Xerox spokesperson issued a statement from the Xerox board: “As is absolutely clear from the record, Jeff Jacobson has always conducted himself with the utmost integrity as CEO and in negotiations with Fujifilm. At no point did he exceed the authority granted to him by the board’s chairman or the full board. The allegations by Mr. Deason to the contrary are part of his effort to distort the facts.”

“Mr. Deason and his lawyers are well aware that Ms. Krongard in her sworn testimony stated that, after sending Keegan a letter expressing concern about Jacobson’s conduct, she became aware that Jacobson had in fact previously received Mr. Keegan’s express permission to negotiate with FujiFilm,” the statement said.

Last week, Xerox asked a New York judge to dismiss Deason’s claims against it, Jacobson, and its directors.In the filing, Xerox stated that  New York law doesn’t allow Deason to second-guess the board’s business judgment:

Under the proposed deal, which was announced in January 2018, Xerox would  first merge with Fuji Xerox, and  Xerox shareholders would receive a cash dividend of $9.80 per share. Fujifilm would ultimately end up owning 50.1 percent of the combined company.

Other documents revealed in court papers last week include a July 2017 email sent to Xerox CEO Jacobson by Xerox  employee Tetsuya Shiokawa in which Shiokawa tells Jacobson that Fujifilm’s preferred deal was” a full takeover” of Xerox, and described a scenario in which Fujifilm would team up with a private-equity firm to acquire all of Xerox.

Xerox however contends overall that while it doesn’t dispute that Keegan told Jacobson to stop negotiations with Fujifilm, Keegan and lead independent director Ann Reese “subsequently blessed his efforts to keep working on the deal after the November (2017) conversion, according to The Wall Street Journal. Xerox also says that when Xerox’s performance improved in December 2017, the Xerox board unanimously approved the deal and the decision to stick with Xerox.

Xerox shareholders will voted on the proposed deal sometime in May 2018.

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