TOKYO -- Top shareholder Carl Icahn's opposition to Xerox's takeover by Fujifilm Holdings raises the prospect of a tug-of-war over the terms of the deal ahead of the U.S. blue chip's next general meeting.
The case by Icahn and fellow American investor Darwin Deason against the deal, laid out in an open letter to shareholders Monday, has two main thrusts. First, they object to Fujifilm's gaining majority ownership with no outlay of cash -- or, as they wrote, quoting CEO Shigetaka Komori, "without spending a penny."
To do this, Tokyo-based Fujifilm will first sell its 75% stake in joint venture Fuji Xerox to the venture, the rest of which is owned by longtime partner Xerox. The Japanese group will then use the proceeds from this sale to acquire 50.1% of Xerox.
Second, Icahn and Deason object to the fact that a $2.5 billion special dividend to be paid to existing Xerox shareholders will be "financed with our own assets."
The proposed acquisition "dramatically undervalues Xerox and disproportionately favors Fuji," the investors write in the letter.
Fujifilm and Xerox aim to complete the transaction in the second half of 2018. It must pass muster with regulators and Xerox shareholders, which are expected to gather for a general meeting in May or June.
The billionaire activist investor Icahn earned a reputation as a "corporate raider" in the 1980s by acquiring large blocks of shares in companies, then demanding changes like asset sales or new management to boost shareholder value. He has taken on some of corporate America's biggest names, including Time Warner, Yahoo and Apple, whose CEO Tim Cook he pressed in 2013 to repurchase shares. The U.S. tech giant eventually agreed to return some of its rich cash holdings, which Icahn called excessive, to shareholders through buybacks.
Given his record, people will be watching to see whether Icahn and Deason mount an all-out fight against the Fujifilm-Xerox deal or settle for a compromise that grants them concessions like favorable board appointees.
Fujifilm responded to their letter with a statement saying, "We believe that [the deal] will be beneficial for all stakeholders, including Xerox shareholders and customers."
On Tuesday, Deason filed a lawsuit in the U.S. to block the deal.
Restructuring the transaction now would present a challenge for Fujifilm, potentially depleting financial resources it needs to plow into segments where it seeks growth, notably pharmaceuticals. Komori said he is open to a dialogue with Icahn. Direct talks between the two men could yet lead to a breakthrough.
Besides marking its biggest-ever acquisition, the Xerox takeover puts Fujifilm in the unfamiliar position of tangling with an activist shareholder. If the Japanese group makes a wrong move, it may find itself in an even worse jam.