Fujifilm wins appeal in Xerox merger deal

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Xerox Corp.’s merger woes aren’t over yet.

A New York Appellate court on Tuesday overturned preliminary injunctions that blocked Fujifilm Holdings Corp. from moving forward with a planned $6.1 billion merger of the two companies.

“Plaintiffs failed to show bad faith or a disabling interest on the part of the majority of the directors of Xerox,” the ruling stated.

In January, Xerox and Fujifilm announced plans for a merger that would give Fujifilm 50.1 percent ownership of the combined company, to be known as Fuji Xerox. Xerox shareholders were to receive a $2.5 billion special cash dividend, or roughly $9.80 per share, funded from the combined company’s balance sheet. Xerox shareholders would own 49.9 percent of the company.

At the time of the announcement, then-Xerox CEO Jeff Jacobson had become a target for major shareholders Carl Icahn and Darwin Deason, who had called for his termination, saying he was “neither qualified nor capable of successfully running this company.”

In the weeks that followed, Icahn and Deason urged shareholders to kill the merger with Fujifilm, stating that “unless we do something, this latest Fuji scheme will be the company’s final death knell.”

By March, the document giant had faced two lawsuits brought by Deason claiming, among other things, that Jacobson had pursued a deal with Fujifilm that his board neither wanted nor approved, and that Jacobson orchestrated the deal in order to keep his job.

The April lawsuit stated that in March 2017, the Xerox board of directors—each of whom were named as defendants in the suit—authorized Jacobson to pursue a “100 percent all cash” transaction with Fuji. When Fuji found itself in the middle of an accounting scandal, the pursuit was shelved.

According to Deason’s lawsuit, Jacobson abandoned the pursuit of the all-cash transaction and “threw a hail Mary,” resulting in the transaction as it stood in January that did not require Fuji to spend any cash to acquire control of Xerox.

Xerox and Fuji have a longstanding history; the two companies in 1962 entered a 50/50 partnership in order to develop, produce and sell xerographic and document-related products and services in the Asia-Pacific region. Fujifilm raised its stake in the company to 75 percent in 2001. Fuji Xerox Co. Ltd. is headquartered in Tokyo, and it was through the subsidiary that Fuji acknowledged the accounting errors.

Judge Barry Ostrager of the state Supreme Court in New York County granted an injunction on April 27 blocking the Xerox merger with Fuji. He ruled that the defendants “breached their fiduciary duties as directors in approving the proposed transactions and that Fuji aided and abetted such breach.”

As a result, Xerox ended the acquisition agreement, stating it was as a result of Fujifilm failing to deliver the audited financials of Fuji Xerox by April 15 and the differences in the audited financials from the unaudited financials.

In May, Xerox announced that Jacobson and several board members had resigned, and John Visentin was named CEO. In June, Fuji sued Xerox for breach of contract, seeking $1 billion in damages. Visentin later said Xerox would cut all ties with Fuji and would not renew its Fuji Xerox contract when it expires in 2021.

In Tuesday’s reversal, the court found that Jacobson “neither misled nor misinformed the board.”

“The board, which engaged outside advisors and discussed the proposed transaction on numerous occasions prior to voting on agreeing to present it to the shareholders, did not engage in a mere post hoc review, nor was the transaction unreasonable on its face,” the ruling added.

The ruling also said the lower court “should have also dismissed the claims alleging aiding and abetting a breach of fiduciary duty as against Fuji,” stating “their claims being unsupported by specific factual allegations.”

Tuesday’s decision “will allow us to discuss with Xerox the fulfillment of the original agreement. All Xerox shareholders ought to be able to decide for themselves the operational, financial and strategic merits of the transaction to combine Fuji Xerox and Xerox,” according to a statement from Fuji.

Xerox officials have not expressed publicly a desire to renegotiate a merger deal with Fuji and did not immediately respond to a request for comment on Wednesday.

Shares of company stock (NYSE: XRX) were up at $27.15 in heavy midday trading Wednesday.

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