TOKYO -- Fujifilm Holdings was left standing at the altar in May, after U.S. office equipment maker Xerox terminated its takeover agreement with the Japanese company.
The trouble began with the Supreme Court of the State of New York, which temporarily suspended the deal in April. A close look at the court's ruling shows that over-friendly emails between the management of the two companies shifted the case in favor of a group of large shareholders, including activist investor Carl Icahn, opposed to the deal.
Legal experts, too, have faulted Fujifilm for being unprepared for the risks of litigation in the U.S.
"We will be ... one team to fight against a mutual enemy," said an email from a Fujifilm executive handling the merger to then Xerox CEO Jeff Jacobson, as the two sides discussed the deal in November 2017. "We are aligned, my friend," Jacobson wrote back.
The following month, Jacobson sent a text to Fujifilm declaring, "We will finish our mission and win!"
"We're supporting you, Jeff!" came the reply.
Other senior managers at Xerox seemed aware of the exchange, which shed an unfavorable light on the two companies when they were revealed in the court's ruling on April 27.
Justice Barry Ostrager's cited several of those emails in concluding that Jacobson "[attempted] to enlist Fuji's assistance in preserving his position." The preliminary injunction halted the merger and acknowledged that Icahn and the other plaintiffs would "incur damage" from the "one-sided deal."
Litigation over mergers and acquisitions is common in the U.S., with shareholders often seizing the opportunity to extract better terms for themselves. But a court ruling that stops a deal in its tracks is rare. "The email exchanges were too frank, and once they were revealed, it threw into doubt the fairness of the deal for the court," said Shintaro Takai, a Japanese lawyer specializing in U.S. law.
So how did the emails come to light? In the U.S. legal system, "discovery" is important part of gathering evidence. Parties to a dispute are often ordered to disclose a vast range of material, ranging from internal documents to email records and memorandums.
"Fujifilm's management may not know much about the U.S. legal system, or its risks," said Tokyo-based U.S. lawyer Stephen Givens.
Another M&A specialist in the U.S. agreed. "The frequency of litigation, and careful handling of discovery requests, is common knowledge for those doing business in the U.S." But the Fujifilm management involved in the email discussions were "key people in the negotiations over the deal. They have come out looking childish and helpless."
"You never know when evidence will work against you at trial," the specialist said, "so a reasonable businessman would never send this sort of email. If necessary, they would certainly go through a lawyer, because attorney-client communications are not subject to disclosure."
Fujifilm declined to give details on the matter, saying the case was ongoing. The company is appealing the injunction and earlier said, "In concluding the deal, we sought the opinion of external experts and, with the unanimous agreement of the Xerox board of directors, we proceeded with the negotiations along appropriate lines."
"The takeover proposal itself did seem to be proceeding correctly," observed a Japanese lawyer who advises Japanese companies in the U.S. "But despite that, it's important to note that this resulted in a highly unusual injunction. You'd have to guess that the impression given by the emails was far worse" than the mechanics of the deal itself, the lawyer said.
"The presiding judge in this case, Ostrager, has attracted attention in his career," said another lawyer based in New York. Before he was appointed to the bench in 2015, Ostrager worked for decades as a Wall Street attorney.
"He handed down that judgment based on abundant proof, and as a lawyer well acquainted with business, not as a narrow legal judgment. That part is important," the New York lawyer said.
Many other emails were used as evidence. In one from December 2017, Jacobson said of Fujifilm CEO Shigetaka Komori, "Please thank Mr. Komori for me. I appreciate his support and loyalty!" An email from January 2018 from Fujifilm management said, "I clearly told Komori to tell [then Xerox Chairman Robert] Keegan that he wants Jeff to be the CEO."
According to Givens in Tokyo, "As a major company dealing with an overseas acquisition, Fujifilm's guard was too low."
Fujifilm's email exchanges may have dealt the final blow to its hopes of buying the storied U.S. company. The episode is a cautionary tale for Japanese companies pursuing overseas acquisitions.