Tag: deason

Xerox reports drop in revenue, earnings

xerox logoAmid turmoil among Xerox Corp. leaders and shareholders, the company last week reported a first quarter drop in revenue and earnings, missing Street estimates.

The document company reported revenue for the quarter of $2.44 billion, down 0.8 percent from $2.45 billion in the year-ago quarter. Net income for the quarter was $23 million, down from $40 million a year ago.

Diluted earnings per share for the quarter ended March 31 were 8 cents, compared with 14 cents in the first quarter last year. Adjusted earnings were 68 cents for the quarter, a 1-cent increase over last year.

Analyst expectations ranged from 70 cents to 73 cents earnings for the quarter.

“In the first quarter of 2018, we grew adjusted operating profit year-over-year, excluding equity income, and continued to generate significant cash flow,” said Bill Osbourn, Xerox’s chief financial officer. “The entire team is keenly focused on continuing to lead in our markets, serving our customers well and generating strong shareholder returns.”

During the first quarter, Xerox’s equity income from its non-controlling 25 percent interest in Fuji Xerox was a loss of $68 million, down $108 million from the prior year. This includes a $28 million charge related to the correction of accounting adjustments and misstatements found last year during an audit.

Xerox did not provide full-year guidance due to the ongoing battle between shareholders, the board and company CEO Jeff Jacobson. The company last week let a deal with two of its largest shareholders expire, an unexpected U-turn that will, at least for now, keep Jacobson in the driver’s seat.

Activist shareholders Carl Icahn and Darwin Deason had reached an agreement last Tuesday to replace Jacobson and six board members, stemming from the $6.1 billion deal that would have Fujifilm Holdings taking 50.1 percent control over the document company. Icahn and Deason have said the merger with Fujifilm greatly undervalues Xerox stock and gives Fujifilm control without providing a premium to Xerox shareholders. As a result, they have fought for Jacobson’s ouster.

Tuesday’s agreement called for Jacobson’s resignation and a realignment of the board as resolution to Deason’s lawsuit against the merger. But the agreement required “execution of stipulations discontinuing the Deason litigation with respect to the Xerox defendants,” a statement from Xerox said.

Those stipulations were never executed and the agreement expired at 8 p.m. Thursday. Xerox said Jacobson and the original board remain in place and in control.

Earlier stories about the merger and subsequent lawsuits can be found here, here and here.

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Deason claims inappropriate actions by Xerox’s Jacobson

xerox-logoAn amended lawsuit filed by Xerox Corp.’s third-largest shareholder alleges that company CEO Jeff Jacobson pursued a deal with Fujifilm Holdings Corp. that his board neither wanted nor approved, and that Jacobson orchestrated the deal in order to keep his job. Xerox officials have denied that claim.

The complaint, filed this week by Darwin Deason, centers on a $6.1 billion acquisition deal that would give Fujifilm 50.1 percent ownership of the combined company, to be known as Fuji Xerox. Xerox shareholders will receive a $2.5 billion special cash dividend, or roughly $9.80 per share, funded from the combined company’s balance sheet, and will own 49.9 percent of the company.

The lawsuit states that in March 2017, the Xerox board of directors—each of whom have been named 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.

In its preliminary proxy statement, filed last week with the Securities and Exchange Commission, Xerox noted that in July Fuji said it would not entertain an all-cash acquisition and the parties agreed to identify and assess alternative transaction structures with their senior management teams.

The SEC filing also states that on July 19 and 20 last year, Xerox’s independent directors met in executive session, during which they discussed the company’s performance under Jacobson’s tenure as CEO.

“While to date Xerox’s performance had been in line with previously established financial performance, cost-cutting and product launch goals, it was unclear whether such goals would continue to be achieved,” Xerox officials wrote in the SEC filing. “As a result, the board formed a new committee … to conduct a market search of possible CEO candidates.”

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 stands that does not require Fuji to spend any cash to acquire control of Xerox.

“For over 14 months I pursued the truth at Xerox,” Deason said in a statement Monday. “At every turn, the Xerox board has chosen heavy handed tactics over compliance with accepted norms and laws, and that continues to this day as they withhold hundreds of highly material and relevant documents from the shareholders.”

Xerox Chairman Robert Keegan on Monday said Deason’s litigation “distorts many of the facts regarding the proposed combination with Fuji Xerox.”

“Xerox strongly believes that Mr. Deason’s lawsuit is meritless and it will vigorously defend itself in legal proceedings,” Keegan said in a statement. “Xerox’s Board of Directors followed a comprehensive process in reaching its decision to approve the proposed transaction, including a comprehensive review of the company’s strategic and financial alternatives, as well as potential transaction structures and negotiations with Fujifilm over a ten-month period. Xerox CEO Jeff Jacobson was fully authorized to engage in discussions with Fujifilm and Fuji Xerox on the proposed combination.”

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Xerox faces shareholder lawsuits

Fuji XeroxIn the span of four weeks, Xerox Corp. has found itself the defendant in two separate lawsuits filed by one of its largest shareholders.

Darwin Deason, Xerox’s third-largest shareholder, has filed suit against Xerox, Xerox CEO Jeff Jacobson and Xerox’s board of directors to, among other things, allow Deason and other shareholders to nominate a full slate of directors for consideration and election at Xerox’s 2018 Annual Meeting. The complaint was filed on March 2 in the Supreme Court of the State of New York, New York County.

The complaint notes that for the upcoming 2018 annual meeting of stockholders, the time to provide advance notice expired on Dec. 11, 2017. Deason’s suit also notes that more than six weeks later, Xerox and its board made a series of “very significant decisions and disclosures that were highly material to Plaintiff’s (and likely other Xerox shareholders’) decisions concerning potential nomination of directors.”

Those decisions include the following, Deason contends:
• approving a dramatically one-sided sale of 50.1 percent of Xerox to Fujifilm Holdings Corp. for virtually no control premium and entrenching themselves with board and executive positions with the new entity post-closing;
• disclosing for the first time the existence of a deal-restrictive “crown-jewel” lock-up right in favor of Fuji under joint venture agreements with Fuji and that such lock-up curtailed Xerox’s ability to pursue strategic alternatives with any entity other than Fuji; and
• disclosing for the first time that, in connection with Xerox’s change of control transaction with Fuji, defendant agreed to make Fuji’s crown jewel lock-up rights permanent going forward.

The complaint alleges that the decisions made by the board “dramatically change the circumstances of the company’s prospects, and were unknown to Xerox’s stockholders, including plaintiff, prior to the Dec. 11, 2017 advance notice bylaw deadline. These new facts also highlight that Xerox is at a crossroad and the Xerox board faces imminent and critical decisions concerning the future of the company.”

Deason contends that stockholders should be given an opportunity to “determine, in view of these changed circumstances, whether to elect a board that will reevaluate if the proposed change of control transaction with Fuji is in the best interest of Xerox’s stockholders and whether Xerox should take any action with respect to the deal-prohibitive crown jewel lock-up, including termination of such lock-up right—a legal right Xerox has at this time, but the current Xerox Board has inexplicably refused to pursue—so that the company can engage in a fair and transparent bidding process.”

On Feb. 26, Deason sent a letter to Xerox officials requesting that the Dec. 11 director nomination deadline be waived, a request that was denied, he contends. In the lawsuit, Deason said that without injunctive relief, he and all other Xerox shareholders will be “irreparably harmed.”

“Indeed, Plaintiff and all Xerox shareholders will be deprived of their most fundamental corporate right—the right to exercise their franchise and have a voice in the future direction of the company,” the suit reads.

Deason and Xerox’s largest shareholder, Carl Icahn, have called for Jacobson’s termination from his position since rumors of the Xerox/Fuji deal began to surface in January. Icahn and Deason have been quite vocal with their discontent.

Icahn has been buying and selling shares since early last month. Icahn sold more than 1.2 million shares in early February, according to Securities and Exchange Commission documents. A week later, he purchased 15.3 million shares.

In the earlier lawsuit filed Feb. 13, Deason was seeking to enjoin the transaction, terminate the Xerox/Fuji joint venture lock-up and joint venture agreements and pursue strategic alternatives for Xerox.

“After having considered all strategic alternatives available to the company, 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. It is unfortunate that Mr. Deason is seeking to interfere with Xerox shareholders’ right to decide and is relying on meritless legal claims,” Xerox officials said in a statement at the time. “Xerox has fully disclosed the joint venture agreements, and the company will respond to Mr. Deason’s legal claims through the appropriate legal channels in due course.”

When Fuji and Xerox announced the $6.1 billion deal Jan. 31, it was noted that the merger would give Fujifilm 50.1 percent ownership of the combined company, to be known as Fuji Xerox. Xerox shareholders will receive a $2.5 billion special cash dividend, or roughly $9.80 per share, funded from the combined company’s balance sheet, and will own 49.9 percent of the company.

Fujifilm, following the merger announcement, said it would slash 10,000 jobs globally at the Fuji Xerox subsidiary, which last year employed more than 45,000 people.

Shares of Xerox stock (Nasdaq: XRX) were down slightly at $30.08 in midday trading Friday. The document company’s 52-week range is $26.64 to $37.42.

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Shareholder sues Xerox over deal with Fuji

Fuji XeroxThe gloves are off.

Darwin Deason, Xerox Corp.’s third-largest shareholder, has filed a lawsuit against Fujifilm Holdings Corp.; Xerox; current Xerox board members; and Ursula Burns, Xerox’s former chairman and CEO. The complaint was filed Feb. 13 in the Supreme Court of the State of New York, New York County.

In the complaint, Deason alleges the following:

  • The Xerox/Fuji transaction 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 before the signing of the Xerox/Fuji transaction;
  • The “crown jewel” lock-up agreement precludes a transparent and fair process for the potential sale of Xerox;
  • Despite its duty to do so, Xerox’s board fraudulently never disclosed the “crown jewel” lock-up;
  • Fuji and Fuji Xerox participated in a “WorldCom”-like accounting scandal that was uncovered in 2017 and gave Xerox the right to terminate the crown jewel lock-up provision, but the Xerox Board failed to terminate the provision;
  • Xerox publicly admitted that the lock up “limit[ed] Xerox’s strategic flexibility,” which caused the Xerox board to sell 50.1 percent of Xerox to Fuji;
  • Xerox/Fuji deal is extremely off-market:
    – No control premium for Xerox shareholders
    – 50.1 percent/49.9 percent Fuji control
    – Xerox CEO and board members retain jobs
    – No Xerox market check or sale process
    – Xerox share price has declined 2.4 percent since the unaffected date (Jan. 10) to Friday’s close (date prior to issuance of Icahn/Deason letter); and
  • Deason seeks to enjoin the transaction, terminate the Xerox/Fuji joint venture lock-up and joint venture agreements and pursue strategic alternatives for Xerox.

For its part, Xerox officials said Deason’s allegations are without merit and the company will vigorously defend itself.

“After having considered all strategic alternatives available to the company, 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. It is unfortunate that Mr. Deason is seeking to interfere with Xerox shareholders’ right to decide and is relying on meritless legal claims,” company officials said in a statement. “Xerox has fully disclosed the joint venture agreements, and the company will respond to Mr. Deason’s legal claims through the appropriate legal channels in due course.”

Xerox —on the heels of Monday’s open letter from shareholders Deason and Carl Icahn—is calling many of the Icahn/Deason letter’s statements “misleading” and “inaccurate.” Xerox’s board has thus far declined to engage in a public debate, officials said Tuesday morning, but the letter “warrants a written response to ensure the facts are clear for all Xerox shareholders.”

In their letter, the two shareholders, who collectively own about 15 percent of Xerox’s shares, called to issue a deal between Xerox and Fujifilm in which “without putting up any cash, (Fuji) will receive (1) an additional, indirect 25 percent interest in a Fuji subsidiary that just last year disclosed a $360 million accounting scandal caused by a ‘culture of concealment’ and Fuji’s failure to have adequate management systems, and (2) a one-time special dividend financed with our own assets.”

When Fuji and Xerox announced the $6.1 billion deal Jan. 31, it was noted that the merger would give Fujifilm 50.1 percent ownership of the combined company, to be known as Fuji Xerox. Xerox shareholders will receive a $2.5 billion special cash dividend, or roughly $9.80 per share, funded from the combined company’s balance sheet, and will own 49.9 percent of the company.

Fujifilm, following the merger announcement, said it would slash 10,000 jobs globally at the Fuji Xerox subsidiary, which last year employed more than 45,000 people.

In its statement Tuesday, Xerox said the proposed combination of Xerox and Fuji Xerox followed a year-long review of value-enhancing alternatives available to the company. That review found that the proposed merger “delivers significantly more value to Xerox shareholders than would be achievable on a standalone basis.”

Icahn and Deason have asked shareholders to reject the deal, citing a number of issues. The two shareholders contend that the economics of the transaction disproportionately favor Fuji at Xerox shareholders’ expense.

“When we sketch out the financials of the deal, this is our conclusion,” Icahn and Deason wrote. “We—the existing Xerox shareholders—are selling approximately $535 million of normalized annual recurring cash flow for about $1.25 billion. In other words, we are selling control of Xerox for a cash flow multiple barely exceeding 2.3x.”

But Xerox in its statement called their math “suspect.”

“This analysis is just plain wrong,” Xerox officials wrote. “As discussed in prior presentations to investors, Xerox shareholders receive in the transaction a $2.5 billion dividend at closing; 49.9 percent of the combined Xerox and Fuji Xerox; and 49.9 percent of the benefit of the value created from at least $1.7 billion of annual cost savings, including $1.25 billion in cost synergies that are only achievable via this transaction.”

Icahn and Deason in their letter suggested “freeing the company from the shackles of the Fuji Xerox joint venture,” a strategy that Xerox officials say is not viable.

“The joint venture between Xerox and Fujifilm has existed in various forms since 1962,” Xerox officials note. “The current structure dates to 2001, when Fujifilm acquired additional shares in the joint venture to bring its ownership to 75 percent.”

The agreement is a binding legal document “that cannot be simply wished away, renegotiated or dissolved because Mr. Icahn and Mr. Deason desire it so.”

To Icahn and Deason’s claim that Xerox shareholders will become passive minority owners, with no opportunity to receive a control premium, Xerox officials said its board negotiated “strong minority protections,” including five independent Xerox designated directors to serve for five years.

Xerox also noted that Chief Executive Jeff Jacobson—whose firing Icahn and Deason have demanded for weeks—will represent one of the seven Fujifilm board designees and serve as CEO of the combined company.

The document company noted that while Icahn and Deason contend that the company’s revenue and margin have continued to decline in the last three years, its full-year 2017 results “clearly demonstrate that the strategy we have implemented is working as we met or exceeded every financial metric we guided to in 2017.”

“In conclusion, Mr. Icahn and Mr. Deason fail to provide an actionable plan or any cogent ideas to make their scheme a reality,” Xerox officials said in their statement. “Following their playbook would be both highly irresponsible and unlikely to succeed, particularly given the terms and constraints of the existing Fuji Xerox joint venture agreement, and the realities of today’s competitive environment.”

Icahn on Feb. 5 sold 140,011 shares of the company’s stock, at a total value of $4.55 million. The transaction was disclosed in a Securities and Exchange Commission filing last week. Shares of Xerox stock (Nasdaq: XRX) were down more than 2 percent to $29.25 in Tuesday morning trading.

[email protected] / 585-653-4021

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