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Business deals

US court hears Fujifilm's appeal of order blocking Xerox takeover

Acquisition remains in doubt amid questions over Japanese company's strategy

Fujifilm CEO Shigetaka Komori faces questions over the company's long-term strategy if his bid to take over Xerox fails.   © Reuters

TOKYO/NEW YORK -- Fujifilm Holdings' bid to acquire Xerox has entered a crucial stage, as a court in New York convened a hearing Tuesday on the Japanese company's appeal against a lower court's injunction earlier this year that put the deal on hold.

The Tokyo-based maker of films and optical equipment may be forced to call off the purchase if it loses the appeal.

Under the original agreement, the U.S. office equipment maker was to have taken control of a joint venture between the two companies, Fuji Xerox, then Fujifilm was to take a majority stake in the merged company.

At Tuesday's hearing, the judge asked lawyers for Fujifilm whether, if the purchase had gone through, there was an agreement guaranteeing the position of Xerox CEO Jeff Jacobson. Jacobson stepped down in May. A lawyer representing Fujifilm denied that such an agreement existed.

During the 30-minute hearing, the questions focused on how the Xerox board arrived at the decision to accept Fujifilm's takeover offer. There was no announcement on whether further hearings will be held.

Fujifilm announced the buyout at the end of January. But Darwin Deason, a major Xerox shareholder, filed a lawsuit to block the deal. On April 27, a New York district court placed an injunction on the deal, concluding that Jacobson had agreed to the acquisition to save his job.

Fujifilm appealed the ruling, citing the unanimous decision by the Xerox board endorsing the takeover offer.

If Fujifilm wins its appeal, it will call for Xerox to accept the original terms of the deal. But Stephen Givens an American lawyer familiar with Japanese companies, said there was little chance that the two sides would reach an agreement on those terms, noting that the Xerox board that agreed to the takeover resigned in May, prompting the company to cancel it.

Fujifilm may be using the hearings to strengthen its position in negotiations with Xerox. "If we win the case, we can use it as a bargaining chip," a Fujifilm executive said.

If it loses the appeal, it will either take the case to the New York State Supreme Court or hold more talks with Xerox. Industry observers say the Japanese company will have a hard time developing a long-term strategy if it presses ahead with litigation, although it is unclear how long the process would take.

Fujifilm CEO Shigetaka Komori in June said there would be no drawn-out court battle and that he would make a decision by the end of the year on whether to pursue the acquisition.

In a separate court action, Fujifilm filed suit against Xerox in June, seeking over $1 billion in damages against it for pulling out of the agreement. If it fails to settle the dispute with its erstwhile partner, it will have to give up its plans for the acquisition and focus on recovering what it can in damages.

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