Xerox stated that it had announced that at 5:00 p.m. ET on May 13, 2018, that it had notified Fujifilm that the deal to combine Xerox with Fuji Xerox was being terminated, due to, among other things, Fujifilm’s failure to deliver the audited financials of Fuji Xerox by April 15, 2018, and deviations reflected in Fuji Xerox financials reports.

Xerox’s statement refers to an accounting scandal at a Fuji Xerox subsidiary, Fuji Xerox and New Zealand, involving massive revenues over-statements by Fuji Xerox New Zealand for a period over five years, with the Fuji Xerox subsidiary over-stating revenues by 40 billion yen  or  approximately $360 million). Since Fuji Xerox is a joint venture between Xerox and Fujifilm, Xerox determined that its share of the necessary adjustments was approximately $90 million, and that this charge affected its fiscal years 2009 through 2017. Fujifilm and Fuji Xerox continue to review Fujifilm’s oversight and governance of Fuji Xerox as well as Fuji Xerox’s oversight and governance over its businesses.

Settlement Terms

The settlement ends Deason’s litigation against Xerox and its directors, but does not affect any of Deason’s claims  against other Xerox shareholders or against Fujifilm for allegedly “aiding and abetting” the allegedly improper negotiation of the proposed Fujfilm deal.

Under the terms of the settlement agreement:

  • Xerox appointed five new members to its board of directors: Jonathan Christodoro, Keith Cozza, Nicholas Graziano, Scott Letier, and John Visentin.
  • Gregory Brown, Joseph Echevarria, Cheryl Krongard, and Sara Martinez Tucker will continue to serve as members of the Xerox Board of Directors.
  • Robert J. Keegan, Charles Prince, Ann N. Reese, William Curt Hunter, and Stephen H. Rusckowski each resigned from the Xerox Board of Directors.
  • Jeff Jacobson resigned from his role as CEO and as a member of the Xerox Board of Directors.

Icahn Enterprises CEO Expected to Take Helm at Xerox Board

Keith Cozza, the CEO of Icahn Enterprises, is expected to be appointed as the new chairman of the Xerox Board of Directors, and John Visentin is expected to be appointed as the vice chairman and new Xerox CEO.

As part of the agreement, Xerox and Icahn will withdraw their respective nominations of any other director candidates for election at the annual meeting. Xerox will also continue to waive the advance notice bylaw to enable any Xerox shareholder to provide notice of intent to nominate directors for election at the 2018 Annual Meeting of Shareholders until June 13, 2018. The 2018 Annual Meeting of Shareholders will be postponed to a later date.

The new Xerox Board of Directors plans to meet immediately and, among other things, “begin a process to evaluate all strategic alternatives to maximize shareholder value.”

The former Xerox of Board provided the following statement:

“Over the past several weeks, the Xerox Board has repeatedly requested that Fujifilm immediately enter into negotiations on improved terms for a proposed transaction. Despite our insistence, Fujifilm provided no assurance that it will do so within an acceptable timeframe. The Xerox Board believes that the transaction cannot reasonably be expected to be completed under these circumstances, particularly given the court’s injunction of the transaction and the lack of shareholder support for the transaction on current terms, as well as the unresolved accounting issues at Fuji Xerox.  

The Board also considered the potential instability and business disruption during a proxy contest. Absent a viable, timely transaction with Fujifilm, the Xerox Board believes it is in the best interests of the company and all of its shareholders to terminate the proposed transaction and enter a new settlement agreement with Icahn and Deason. Under the agreement, the Xerox Board will be reconstituted to determine the best path forward to maximize value for Xerox shareholders.”

Carl Icahn provided the following statement:

“We are extremely pleased that Xerox finally terminated the ill-advised scheme to cede control of the company to Fujifilm. With that behind us and new shareholder-focused leadership in place, today marks a new beginning for Xerox. We have often said that the most important person at a company (by far) is the CEO. We are therefore also pleased that John Visentin, a tried and true veteran in this area, will be taking the helm.”

Darwin Deason provided the following statement:

“With the limiting Fujifilm agreement terminated, Xerox is now positioned to conduct a true, robust strategic alternatives process. John Visentin has spent weeks preparing himself to run the company and speaking to numerous market participants regarding strategic alternatives. Xerox is fortunate to have someone with his experience and preparation to lead it through this exciting and transformative time.”

Meanwhile the The Wall Street Journal reported that Fujiflm will again present the deal to Xerox’s new management, but it won’t increase its offer price.

Our Take

Despite the many twists and turns in this battle, the battle between the Xerox Board of Directors and Icahn and Deason appears to be over for good. The next question, of course, is what happens next? Will there be new prospective buyers for Xerox? Icahn has stated that he has been approached by several interested purchasers, and that, last year, HP Inc. expressed interest in Xerox. Both Icahn and Deason have stated that they are open to all-cash offers of $40 or more per share for Xerox, with Xerox currently trading at about $30 per share. However, since Xerox’s announcement terminating the Fujifilm deal, Xerox’s share price has fallen to $28 per share.

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