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Business deals

Fujifilm's court victory raises its hopes for Xerox merger

Negotiations, broken off months ago, may be long and difficult

Fujifilm scored a major win in its merger fight with Xerox when a U.S. court ruled against an earlier injunction halting the deal. 

TOKYO -- After months of legal battles, Fujifilm can now press Xerox to fulfill their planned merger after a U.S. court overturned an order blocking the deal Tuesday. Yet several hurdles remain before the companies can unite.

A New York State Appellate Court ruled that former Xerox CEO Jeff Jacobson did not deceive the board of directors to secure his position. It also reversed a lower court injunction against the merger requested by activist investors Darwin Deason and Carl Icahn, who oppose the deal.

"We are very pleased with the New York State Appellate Court’s decision, which ends the lawsuit against Fujifilm in its entirety and validates our position that Fujifilm acted properly and negotiated with Xerox at arms’ length," the Japanese company said in a statement Wednesday.

The American courts have scrutinized Xerox's talks with Fujifilm as part of a lawsuit brought by Deason earlier this year. A preliminary injunction was then issued in late April, which Fujifilm appealed. The appellate court convened a hearing last month to question both sides.

Deason still has the option to appeal the decision to the New York State Supreme Court. There is little merit to demanding another injunction, however, after Xerox management unilaterally scrapped the deal in May.

"It is not likely that Deason will appeal," said a lawyer familiar with corporate law in the U.S. and Japan.

The decision to lift the order brings Fujifilm one step closer to completing the merger because it can legally demand that Xerox fulfill the terms of their January contract. The two sides have not talked since April.

But the deal is far from complete. In addition to tearing up the deal in May, Xerox's board is controlled by directors aligned with Deason and Icahn, including new CEO John Visentin. It is therefore unlikely that Xerox will agree to the initial merger.

The next issue will be how to renegotiate the merger. Fujifilm will ask that Xerox complete the original contract. If Xerox refuses, Fujifilm could be forced to compromise. But changing the deal will require approval from its shareholders as well, a step the company wants to avoid.

CEO Shigetaka Komori took an uncompromising stance in July when he said that Xerox "is not essential to Fujifilm's growth."

Xerox shareholders, meanwhile, have never had their chance to officially vote on the original agreement because of the injunction. Any agreement reached in talks with Fujifilm must therefore be put before Xerox shareholders.

"All Xerox shareholders ought to be able to decide for themselves the operational, financial and strategic merits of the transaction," Fujifilm said Wednesday. 

Fujifilm is also demanding compensation from Xerox for canceling their contract. If the two companies cannot reach an accord, Fujifilm may give up on the merger and turn to suing for damages. Komori suggested in June that a decision could be reached within the year.

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