Xerox Appeals Court Decision that Blocks Xerox-Fuji Xerox Merger

Xerox – which yesterday announced that its proposed agreement with activist investors Carl Icahn and Darwin Deason was off (see Stunning U-Turn: Xerox Settlement OFF; Current Xerox Board, CEO Remain in Place) – today announced that it’s appealing a New York Supreme Court decision that temporarily blocks a proposed Xerox-Fuji Xerox merger.

Xerox “strongly believes that the decision is contrary to well-established New York law vesting the Board of Directors of Xerox with the business judgment to enter into the transaction agreement with Fujifilm (the “Transaction”) and that the decision to approve should rest with Xerox’s shareholders, not the Court.”

Xerox shareholders were to have voted on the proposed merger this month, but that vote has been postponed.

Xerox’s appeal disputes the court’s finding that the Xerox Board breached their fiduciary duties in approving the transaction. To the contrary, Xerox argues that the Xerox Board unanimously authorized the transaction after months-long discussions and deliberations, and, its decision was based on its good-faith judgment that the merger represented the best value-maximizing alternative for the company’s shareholders.

The appeal is in response to a lawsuit filed by Darwin Deason that seeks to block the proposed Xerox-Fuji Xerox merger, and enable Deason to nominate Xerox board members. The Deason lawsuit names  Fujifilm Holdings, the Xerox Board of Directors, Xerox CEO Jeff Jacobson, and former Xerox CEO Ursula Burns.

In Xerox’s appeal, the firm argues that the New York court’s granting of a preliminary injunction blocking the merger between Xerox and Fuji Xerox, “eviscerated” well-established business-judgement rule enabling companies to govern themselves, imparting the purported misconduct of a single Xerox (board) director to the entire 10-person Xerox board, all of whom unanimously approved the proposed merger after months of debate, negotiation, and analysis, and that there was no reason for the court to disregard the Xerox board’s judgement.

The Xerox appeal also states the court’s decision has turned the law concerning public-company governance “on its head,” and if not over-turned, will have “far-reaching consequences” on the ability of New York State corporations to govern themselves, and jeopardizes whether other companies will wish to incorporate in New York State.

The appeal also states that the decision harms Xerox shareholders by preventing them from voting on the proposed Xerox-Fuji Xerox merger that the Xerox board concluded was both “value-maximizing and the only available option.”

The appeal argues that even if Xerox CEO Jeff Jacobson was allegedly “massively conflicted” about the merger – which Xerox says he was not – there is no legal basis for challenging the unanimous decision of the nine other Xerox board directors to go ahead with the proposed merger.

The appeal states that, contrary to what Icahn has argued (that the proposed deal under-values Xerox), each of the five Xerox directors who testified in court last month stated that the proposed merger would provide more value to Xerox shareholders than any alternative path forward for Xerox.

Shareholders Should Decide on Merger, Not Court

Finally, the appeal argues that even if CEO Jacobson’s conduct was improper – which Xerox says it wasn’t – Xerox shareholders are “fully capable of making their own independent judgement about the transaction” and should be able to vote on the matter. The company also disputed the court ruling that would bypass Xerox’s internal bylaws regarding Deason’s ability to nominate members to the Xerox board.

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