Deason, Icahn Post $150 Million Bond to Keep Temporary Injunction Against Fujifilm Deal

Xerox investor Darwin Deason, who owns about 7 percent of Xerox shares.

Today, activist investors Carl Icahn and Darwin Deason, who together own about 15 percent of Xerox shares, reported that they’ve posted a $150 million bond to preserve two preliminary injunctions issued last week by the New York State Supreme Court that temporarily block a complex proposed Xerox and Fuji Xerox merger, and the sale of Xerox to Fujifilm for $6.1 billion.

The first court injunction bars Xerox from holding a shareholder vote on the  Fujifilm transaction, a vote that Xerox was to have held this month. The second injunction bars Xerox from enforcing its advance notice bylaw so that the company cannot bar shareholders from nominating an alternative slate of directors.

In that court decision, the court concluded that the Fujifilm was “so tainted with conflict” that it was likely that Xerox CEO Jeff Jacobson and the Xerox board, “aided and abetted by Fuji,” had breached their fiduciary duties owed to Xerox shareholders.

Together, Deason and Icahn have argued that the proposed Fujiflm deal under-values Xerox, and that the merger would place Xerox out of the control of Xerox shareholders. Xerox has appealed that court decision, arguing that whatever improper conduct there have been by CEO Jacobson and a Xerox director – and it says there was none – it is irrelevant, as the Xerox board unaminously approved the deal after months of negotiations and discussions.

In their public May 7th letter to Xerox shareholders, Deason and Icahn argue that Xerox’s appeal “allows Fuji to have a hand in deciding the future of Xerox,” and also somewhat ironically argue that “the future of Xerox should be decided by Xerox shareholders and its board” – even though Xerox shareholders would have voted on the proposal this month if not for the Deason litigation that seeks to stop the deal.

Deason and Icahn also argue that Xerox failed to make leadership and governance changes that had been agreed upon in a settlement announced last week, and that departing Xerox boards directors wanted additional legal protections. Xerox argued that the settlement expired because Deason failed to end his litigation against the Xerox board, which was also part of the now-expired settlement.

In the letter, Icahn and Deason promised to “go on and on” and state that they see several paths to victory “but none of them involve selling a 50.1% interest in Xerox in a deal that offers no control premium and leaves shareholders vulnerable to oppression by an overlord that is embroiled in an ever-widening accounting scandal.” The accounting scandal refers to Fuji Xerox New Zealand and Australia subsidiaries, which inflated income from office-equipment leases from fiscal 2010 through fiscal 2015. A subsequent restatement of past earnings resulted in a cumulative loss of $343 million.

The two also state that they are aware of buy-out firm Apollo reportedly considering making a bid for Xerox, and state that they’re confident that other potential buyers are “waiting in the wings to kick the tires – but we do not see any possibility of an alternative bid materializing unless and until the lame duck board and the lame duck CEO relinquish their death grip on Xerox.”

According to the letter, a cash bid at a minimum of $40 per share would appear to be welcome to both Icahn and Deason; the proposed Fujifilm deal specifies $28 per share. They would also prefer Icahn consultant, and former IBM and Hewlett-Packard executive, John Visentin be appointed the new Xerox CEO, as well as the establishment of a new “conflict-free board.”

Finally, the investors demand that the Xerox board:

  • Assert its rightful termination of the Fuji transaction;
  • Fire the “massively conflicted” Jeff Jacobson, which will be his third departure in 7 months;
  • Hire John Visentin as CEO; and
  • Step down from the Xerox board, allowing a new, shareholder-focused board to take its place.

They also state that they intend to hold Jacobson, and Xerox Board Directors Bob Keegan, Ann Reese, and Chuck Prince, “who have already done so much damage to Xerox, and are continuing to do more damage with these actions,” fully and personally liable for their misconduct, as well as  Fujifilm for being an “aider and abettor of the continuing breaches of fiduciary duties by those directors.”

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