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A Top Xerox Shareholder Just Sued to Block Fuji’s Takeover

February 13, 2018, 5:50 PM UTC

Xerox Corp.’s third-biggest shareholder sued to block its plan to turn over control to Fujifilm Holding Corp., calling the deal a one-sided transaction that leaves investors in the once-iconic photocopy maker virtually powerless.

Darwin Deason asked a judge to halt the deal and terminate existing joint venture agreements between the companies. He claims the agreement is the result of fraud and that directors breached their fiduciary duties.

“The transaction must be stopped dead in its tracks,” Deason said in the complaint, filed Tuesday in Manhattan state court.

Xerox shares fell 1.9 percent at 11:40 a.m. in New York trading.

Deason claimed the agreement “is the result of an improper and fraudulently concealed ‘crown jewel’ lock-up agreement that Xerox entered into with Fuji 17 years ago that was never disclosed to Xerox’s shareholders,” until the agreement between the two was made public last month.

Fuji, Xerox, current Xerox board members and Ursula M. Burns, Xerox’s former chairman and chief executive officer are named as defendants in the lawsuit.

Xerox denied Deason’s claims in a statement Tuesday.

“Xerox’s Board of Directors remains steadfast in its belief that the combination with Fuji Xerox is the best path to create value for the company and its shareholders,” the company said.

Deason and fellow billionaire investor Carl Icahn, who together own about 15 percent of Xerox, have actively opposed the company’s plan to cede control to Japan’s Fujifilm. They said in a Feb. 12 letter to shareholders that the deal “dramatically undervalues” the company.

Xerox’s board Tuesday called the letter “misleading and inaccurate,” telling shareholders hat the transaction with Fuji announced Jan. 31 was the result of an exhaustive, year-long review of options.

“That review found that the transaction, as currently proposed, delivers significantly more value to Xerox shareholders than would be achievable on a standalone basis,” the directors said in the letter.

Under terms of the agreement, Xerox would first merge with a joint venture the company operates with Fujifilm in Asia. Fujifilm would ultimately end up owning 50.1 percent of the combined entity, which expands the joint venture to encompass all of Xerox’s operations, the companies said. Xerox holders would receive a cash dividend of $9.80 a share under the proposed transaction.

The agreement allows Fuji to control Xerox’s intellectual property and manufacturing rights in the $36 billion Asia-Pacific market in the event Xerox were to sell just 30 percent of the company to another suitor, according to Deason’s complaint. The suit also claims that Xerox would have had the right to terminate the joint venture agreements after an accounting scandal at the Xerox-Fuji joint venture.

Had the director defendants terminated the joint-venture agreements, they would have been able to engage in a fair and equitable bidding process and achieve a fair value and control premium for Xerox shareholders, according to Deason.

The case is Deason v. Fujifilm Holdings Corp., New York State Supreme Court (Manhattan).