It doesn’t seem possible that there could be yet another dramatic twist to the ongoing battle between the Xerox Board of Directors and activist investors Carl Icahn and Darwin Deason – who are protesting the proposed sale of Xerox and merger with Fuji Xerox – and yet there is.

Late yesterday, Xerox released a statement that the proposed settlement with Ichan and Deason has expired. The settlement would have entailed the end of Deason’s ligitation against Xerox, resignation of most of Xerox board members and Xerox CEO Jeff Jacobson, and appointment of a consultant to Icahn, John Visentin, and appointment of six Icahn-friendly board members. Now the deal is off – all because, it appears, Deason did not terminate his litigation against Xerox.

The firm stated yesterday that “the settlement agreement it had reached with Carl Icahn and Darwin Deason on May 1, 2018 has expired in accordance with its terms. As previously stated, the agreement would have become effective upon execution of stipulations discontinuing the Deason litigation with respect to the Xerox defendants. In the absence of such stipulations, the agreement expired at 8:00 p.m. ET on May 3, 2018.”

As a result, Xerox’s current Board of Directors and management team will remain in place.

The company also stated: “Xerox and its Board of Directors recognize the uncertainty caused by the developments of the past several days among the company’s investors and other stakeholders.

“The Xerox Board and management team remain focused on driving continued improvement in financial and operational performance, and will consider all options to create value for the company and its shareholders.”

Icahn Blames Xerox Board

In a public letter to Xerox shareholders published this morning, Icahn and Deason blamed the expiration of the agreement on Xerox, which it accused of permitting the agreement to expire:

“At 8:00 pm ET on Thursday night, the settlement agreement we entered into with Xerox and a unanimous Xerox Board earlier this week expired without the Xerox Board permitting the agreement to take effect, once again intentionally violating their fiduciary duties to Xerox shareholders by pursuing their own brazen self-interest.”

Icahn accuses the Xerox Board of “recklessly” refusing to follow through with the leadership and governance changes agreed upon, demanding “unprecedented additional approvals for their own personal self-interest.”

The activist investor accused the Xerox Board of seeking to obtain “additional unprecedented protections from the court, which all parties (and the judge!) agree are not required under applicable law.”

Icahn ominously concludes by promising further legal action against Xerox and Fujifilm:

“Over the next few months, we intend to see that ‘massively conflicted’ Jeff Jacobson and old guard directors like Bob Keegan, Ann Reese and Chuck Prince, who have already done so much damage to the company, and are continuing to do more damage with these actions, are held fully and personally liable for their misconduct. Similarly, we intend to see that Fujifilm is held fully liable as an aider and abettor of the continuing breaches of fiduciary duties by those directors.”

Our Take

The current status quo is now a court injunction temporarily blocking the Fujifilm deal until the matter is further litigated and a final determination made. Xerox shareholders were to have voted on the proposal this month at an annual shareholders’ meeting, but Xerox has postponed that meeting. Meanwhile, a Rochester-area source that has been intimately involved with the Xerox culture over many years told us that everybody they have spoken to is for the FujiFilm deal.

Despite Icahn’s accusations, it appears blame for expiration of the agreement lies with Deason, who failed to stop his litigation against Xerox as the agreement called for. The agreed settlement seemed to offer everything Deason and Icahn could want – dismissal of key Xerox board members, appointment of Deason-friendly board members and Icahn-friendly CEO, and resignation of Jacobson, who Icahn, in particular, wanted gone. Xerox had also said it would pursue alternatives to the proposed Fujifilm deal announced back in January. Now Icahn and Deason are back to square one, the battle has become only more personal and vindictive, and promises only to become more protracted.

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