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Fujifilm weighs next move on Xerox after foes of merger take over

Icahn and Deason ousted US company's board and CEO to scuttle transaction

Fujifilm Holdings' acquisition of Xerox is in doubt after major shareholders in the American company pushed its CEO and most of its board to quit.   © Reuters

TOKYO -- Fujifilm Holdings is ready to fight for its planned acquisition of Xerox after a majority of the American office machine maker's board quit at the insistence of the deal's powerful opponents.

Xerox announced Tuesday that it had reached a settlement with Carl Icahn and Darwin Deason. The pair of activist investors are allied against a plan that would merge the company with the joint venture Fuji Xerox, in effect putting Xerox under Fujifilm's control. Seven members of Xerox's board, including CEO Jeff Jacobson, are to resign. They will be replaced with six board directors backed by Icahn and Deason.

Jacobson worked extensively with Fujifilm Chairman and CEO Shigetaka Komori to assemble the deal. His resignation comes after a U.S. court temporarily blocked the deal last Friday.

Fujifilm has said it will fight the court's decision. The acquisition agreement with Xerox is legally binding, the Japanese company says, and it will demand its partner's new board go through with it.

Some Xerox shareholders accuse Jacobson of pushing through the Fujifilm deal against their wishes. The CEO stifled objections to the acquisition from other board members, according to Deason, and may have been on the road to dismissal when he resigned.

Fujifilm Holdings CEO Shigetaka Komori, left, and activist investor Carl Icahn.   © Reuters

Icahn has said the acquisition plan drastically undervalues Xerox. The deal is structured so that Fujifilm will acquire a 50.1% interest in Xerox through an allotment of new shares without paying a penny in cash -- something the activist team is unwilling to accept, particularly given Xerox's status as an icon of American business whose name is a synonym for "photocopy." While the office machine maker will pay a special dividend of $2.5 billion when the transaction goes through, investors fear the massive share issue will dilute the value of Xerox stock. Shares slumped after the arrangement came to light.

The recent injunction against the deal is in effect a ruling against Fujifilm, according to an attorney versed in American corporate law. Icahn and Deason in mid-April proposed an alternative path forward for the company, including a reconsideration of its alliance with the Japanese company. The company's new board is likely to shake up the acquisition plan in line with the pair's recommendations.

Fujifilm has only a few weapons at its disposal as it fights back. The first is the courts: The Japanese company will consider suing for damages should Xerox's new management team choose not to abide by the agreement, according to a Fujifilm official.

The company could also attempt a hostile takeover of Xerox. But the American company might not survive such a drawn-out fight. Xerox logged just $570 million in operating profit for 2017, half of the figure from three years prior. Demand for office machinery has plunged as offices in advanced nations go paperless.

A third option would be to sweeten the deal for Xerox, giving the American company funds to raise its special dividend. But investors appear leery of the costs that would create: Fujifilm shares tumbled more than 5% on Wednesday after the shakeup at Xerox came to light.

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