NEW YORK -- Activist investor Carl Icahn has come out against a proposed takeover of Xerox by partner Fujifilm Holdings, arguing that existing shareholders will never realize the full value of their stakes if the Japanese company goes ahead with the cash-free deal.
With a "tortured, convoluted structure," the transaction "dramatically undervalues Xerox and disproportionately favors Fuji," Icahn and fellow Xerox investor Darwin Deason write in an open letter to Xerox shareholders dated Monday.
The letter quotes a Nikkei Asian Review interview with Fujifilm CEO Shigetaka Komori, in which the chief executive says the deal "will allow us to take control of Xerox without spending a penny."
Icahn holds a roughly 9% stake in the U.S.-based company. The pair, calling themselves the two largest individual shareholders, exhorted other investors to vote against the deal.
"We urge you -- our fellow shareholders -- do not let Fuji steal this company from us," the letter reads.
There "is still great opportunity for Xerox to create enormous value for shareholders, and it does not involve selling control to Fuji without a premium," the investors argue, calling for "freeing the company from the shackles of the Fuji Xerox joint venture." Their ideas include shifting Xerox's business portfolio toward software, security and services and refocusing its sales on small and midsize businesses.
In a deal announced Jan. 31, Xerox's board agreed to a transaction that would make it a 50.1%-owned Fujifilm subsidiary. Xerox, which would take control of and merge with the joint venture, is to pay a $2.5 billion special dividend to existing shareholders. In their letter, Icahn and Deason criticize this one-time payout as "financed with our own assets," as opposed to cash from Fujifilm. They also demand "complete and detailed disclosure" of the negotiations on the deal and Xerox's evaluation of the proposal.
Icahn and Deason appear to be holding out for better terms from Tokyo-based Fujifilm. But Xerox, the Japanese company's longtime partner, stood by the deal.
"A comprehensive review of strategic and financial alternatives conducted over many months by the independent members of the Xerox board of directors, in consultation with independent financial and legal advisers ... concluded that the combination with Fuji Xerox is the best path to create value for Xerox shareholders," the American company said in a statement responding to the letter.