Fujifilm has hit back at Xerox over the collapse of the deal agreed back in January for Xerox to sell itself to Fujifilm, filing a suit for $1 billion in damages in the federal court of the Southern District of New York.
The original deal proposed a byzantine structure that would have allowed Fujifilm to acquire Xerox without actually shelling out any of its own money. This proposal provoked a very public battle between Xerox’s former CEO, Jeff Jacobson, and two of the most high profile investors, Carl Icahn and Darwin Deason, who claimed that this deal substantially undervalued the value of their shares. Deason sued Xerox, alleging serious corporate governance issues and Jacobson eventually resigned. This in turn paved the way for John Visentin to take over as CEO, along with several new board members.
The new board abandoned the original deal with Fujifilm but made clear that Xerox would sell itself for the right price with Icahn having previously suggested an all-cash bid for at least $40 per share, though Xerox shares have typically hovered around $28 for much of this year, closing at $27.25 per share last night.
However, Fujifilm’s press releases alleges that the terms and conditions of the original deal were “based on fair valuations from independent experts retained by both companies”. Fujifilm disagrees with the injunction stopping the deal issued by the New York State Supreme Court on 27th April, having filed an appeal on 4thMay.
This new filing goes way beyond the $183 million termination fee that the two companies had agree upon should the deal be called off. Fujifilm has justified this by saying that it is seeking compensation for missing out on the benefits of that deal. Fujifilm’s press release states that “the combination of Fuji Xerox and Xerox is the best option for the future of both companies as it was designed to accelerate business growth and realise new value creation for customers through the deployment of operations based on a globally unified marketing strategy.”
Several Fujifilm executives have told me that the company does not understand how two shareholders, with only 15 percent of Xerox’s shares between them, were able to derail an agreement signed off by the Xerox board. But this is largely down to corporate governance issues at Xerox, though with Deason withdrawing his lawsuit on this matter as part of the deal for Jacobson to resign this won’t now be tested in court.
As things stand, the first opportunity for the shareholders to properly express their feelings on this matter will be the annual general meeting of Xerox shareholders, which was postponed from May, and has now been scheduled for 31 July 2018.
The Fujifilm lawsuit for damages is not expected to be heard until September and my gut feeling is that there is a lot more to come on this story in the meantime. Ultimately, the two companies are tied together through the existing Fuji Xerox joint venture, whether they like it or not, so there’s no easy way for either Fujifilm or Xerox to walk away unscathed.