Carl Icahn, Xerox’s largest shareholder, has written an extraordinary open letter along with Darwin Deason, Xerox’s third largest shareholder, urging his fellow shareholders to block the proposed Fujifilm take over of Xerox, saying: “do not let Fuji steal this company from us.”
Essentially Icahn claims that the Fujifilm acquisition “dramatically undervalues Xerox” and he particularly objects to the idea that Fujifilm won’t actually part with any cash.
The deal has a byzantine structure that does seem to particularly favour Fujifilm. Andy and Julie Plata at American Printer have done some sterling work in trying to get to the bottom of this deal. Essentially, Fujifilm will sell its holding in Fuji Xerox to Xerox and then use the largely theoretical proceeds to buy 50.1 percent of Xerox. When the deal closes, the remains of Fuji Xerox will be folded back into Xerox, which will then rename itself Fuji Xerox. Shigetaka Komori, chairman and CEO of Fujifilm, claimed that it would allow Fujifilm to take over Xerox without spending a penny.
Icahn points out that Xerox shareholders will lose control of Xerox, becoming “passive minority owners of a Fuji subsidiary.” Instead his preferred option is to take Xerox out of the longstanding Fuji Xerox arrangement and to concentrate on software, security and services, while leveraging the company’s strengths in the higher-end enterprise market, and refocusing the distribution channels selling to small and medium sized businesses. He also suggests overhauling the operational structure of the company and realising savings through altering the cost structure as well as monetising the company’s intellectual property.
It’s fair to say that Icahn is not a fan of Jeff Jacobson’s management at Xerox and has long complained that Xerox is underperforming. In an earlier letter from 18 January 2018, he states “that the current management team and the ‘old guard’ directors are ill-equipped to negotiate a major transaction with Fuji. Further, we do not believe this team is qualified to run Xerox, let alone some larger combination of Xerox and Fuji.”
Naturally, Xerox has responded rather angrily to this, rejecting all the points that Icahn makes. Xerox states: “A foundational driver of this Transaction is that combining Xerox with Fuji Xerox will create a company that has a significantly-enhanced competitive position and will, for the first time, be able to fully realize the benefits of industry-leading scale and global reach.
Clearly this deal is not going to go through as smoothly as Fujifilm and Xerox would have liked. Icahn does make a number of good points; Xerox has underperformed and the accounting scandal at Fuji Xerox should give everyone reason to pause. On the other hand, it’s difficult to see Xerox improving its fortunes without a significant structural reform and Icahn is undoubtedly correct in his assessment that that’s unlikely to happen with the current board of directors.