fuji | Rochester Business Journal

Xerox Q4 earnings beat Street estimates, HP not impressed

Fourth-quarter sales fell more than 2 percent for Xerox Holdings Corp., the document company reported this week, but still managed to beat Street estimates.

For the quarter ended Dec. 31, Xerox reported revenue of $2.44 billion, down from $2.5 billion in the fourth quarter last year. Net income was $819 million, compared with $141 million in the year-ago quarter. On a per-share basis, earnings were $1.22, compared with 37 cents a year ago.

Consensus estimates were $1.09 per share on revenue of $2.43 billion.

“We are delivering on our three-year plan. We grew earnings per share, increased cash flow and expanded adjusted operating margin for the full year, and we improved our revenue trajectory in the second half of the year as our investments in the business gained traction,” said Xerox Vice Chairman and CEO John Visentin. “We accomplished this while returning more than 70 percent of free cash flow to shareholders, paying down approximately $950 million in debt and increasing investments in our innovation areas. We are well positioned to carry this momentum into 2020 and lead the way for long-overdue industry consolidation.”

For the full year, revenues fell from $9.66 billion to $9.07 billion, while net income improved to $1.36 billion, from $374 million in fiscal 2018. Diluted earnings per share were $5.80, compared with $1.38 a year ago.

At year-end, Xerox reported assets of $6.14 billion, up from $4.71 billion a year ago. That includes cash of $2.74 billion, compared with $1.08 billion a year ago.

Fourth-quarter and full-year results include a $77 million benefit associated with an OEM license agreement with Fuji Xerox. Xerox and Fujifilm Holdings Corp. announced last year that Xerox would sell its one-quarter stake in Fuji Xerox—an arrangement that began more than 50 years ago when Xerox was at its height in Rochester—back to Fujifilm.

Xerox officials noted several business highlights during 2019, including “expanding Xerox’s relationship with HP.” Since November, Xerox and HP have been engaged in a back-and-forth as Xerox attempts to curry favor among HP shareholders in a hostile takeover attempt.

HP officials this week told Bloomberg that Xerox’s earnings report doesn’t help with “fundamental concerns about the continued revenue declines and health of the Xerox business.” Xerox’s proposal would, in essence, ask that HP shareholders trade the value of HP’s balance sheet for “stock in a company of questionable value and expose (them) to meaningful risk, due to inordinate leverage and sustained, declining performance.”

Shares of Xerox stock (NYSE: XRX) initially took a hit this week, dropping 2 percent following the company’s earnings report, but have bounced back, opening Thursday at $36.85. The company’s 52-week range is $27.25 to $39.47.

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Xerox furthers hostile takeover bid in HP shareholder presentation

Xerox Holdings Corp. has launched its hostile takeover bid of Hewlett Packard Inc., beginning with an investor presentation made available to HP shareholders on Monday.

“There is a clear path to realizing increased value from your investment in HP—the proposed transaction with Xerox,” Xerox Vice Chairman and CEO John Visentin wrote in the 33-page presentation.

In November, Xerox officials reached out to HP executives requesting due diligence surrounding a proposition to acquire HP for $22 per share, which would comprise $17 in cash and 0.137 Xerox shares for each HP share. The proposal closely followed news that Fujifilm Holdings Corp. would buy out Xerox’s one-quarter share in Fuji Xerox, a 52-year partnership that soured last year during a failed merger attempt.

The $2.3 billion buyout gave Xerox the leverage it needed to pursue acquisitions, with Visentin telling one media outlet last month that the company was in “attack mode.”

But HP answered Xerox’s proposal by saying it “significantly undervalues HP and is not in the best interests of HP shareholders.” Still, HP left the door open for a potential combination that would put the computer giant in the driver seat.

Had HP accepted the proposal its shareholders would have owned roughly 48 percent of the combined company. The offer represented a 20 percent premium to HP’s closing share price of $18.40 on Nov. 5.

HP at the time said its board had considered the “highly conditional and uncertain nature” of the proposal, including the impact of outsized debt levels on the combined company’s stock.

The two companies traded barbs, and on Nov. 24 Xerox said it would attempt a hostile bid by going straight to HP’s shareholders. HP officials noted Xerox’s declining revenue, perceived versus real synergies and a host of other issues that could affect company value.

In Monday’s shareholder presentation, Visentin said the value of the transaction “goes beyond economics.”

“In consolidating industries, first movers not only win but also have an opportunity to reshape the competitive landscape in an enduring way,” he wrote, noting that the cash flow generated by the deal would enable rapid de-leveraging and greater capital returns for shareholders.

The presentation suggests cost savings for the combined company of roughly $2 billion in two years and projects $1 billion to $1.5 billion of potential growth opportunities. Xerox says the combined company would be worth roughly $31 per share.

Xerox officials are looking for three weeks of mutual due diligence on the offer.

Shares of company stock (NYSE: XRX) were down slightly at $37.31 midday Monday.

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HP rejects Xerox takeover proposal, recognizes benefit of ‘potential combination’

Days after revealing that activist investor and Xerox Holdings Corp. majority shareholder Carl Icahn had purchased $1.2 billion in Hewlett Packard Inc. stock—a sign that the 83-year-old investor wholeheartedly backed a merger between the two companies—HP announced it had rejected Xerox’s unsolicited bid to acquire the Palo Alto, Calif.-based computer giant.

In a statement released Sunday, HP officials said the Nov. 5 proposal “significantly undervalues HP and is not in the best interests of HP shareholders,” but also left the door open for a potential combination that would put HP in the driver seat.

Xerox’s $33.5 billion proposal offered HP shareholders $22 per share, comprising $17 in cash and 0.137 Xerox shares for each HP share. HP shareholders would have owned roughly 48 percent of the combined company. The offer represented a 20 percent premium to HP’s closing share price of $18.40 on Nov. 5.

“A combination between us is supported by strong industrial logic given our respective strength in the A3 and A4 markets, complementary footprint, deep cultural fit and shared DNA of innovation,” Xerox officials wrote in the proposal. “It is difficult to conceive of a strategic alternative for either company that delivers superior value.”

Xerox pointed to cost synergies of “at least” $2 billion within 24 months, including $500 million by leveraging scale, supply chain and distribution footprint, and $1.5 billion from combining “world-class” R&D groups and streamlining corporate functions.

“Our board of directors strongly believes the industry is overdue for consolidation and that those who move first will have a distinct advantage in a secularly declining macro environment,” Xerox officials wrote in the proposal. “By combining R&D capabilities and financial resources, together we can accelerate the transformation of our businesses and take a leadership role in key growth markets such as 3D printing; digital packaging and labels; graphics; textile printing; workflow software; and IoT enabled services.”

But HP officials on Sunday said its board had considered the “highly conditional and uncertain nature” of the proposal, including the impact of outsized debt levels on the combined company’s stock.

“We recognize the potential benefits of consolidation, and we are open to exploring whether there is value to be created for HP shareholders through a potential combination with Xerox,” said HP President and CEO Enrique Lores and Chairman Chip Bergh in their letter to Xerox Sunday. “However, as we have previously shared in connection with our prior requests for diligence, we have fundamental questions that need to be addressed in our diligence of Xerox.”

Specifically, HP noted the decline of Xerox’s revenue from $10.2 billion to $9.2 billion since June 2018, “which raises significant questions for us regarding the trajectory of your business and future prospects.”

“We believe it is critical to engage in a rigorous analysis of the achievable synergies from a potential combination,” the letter states. “With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction.”

Xerox’s bid to acquire HP followed closely on the heels of an agreement to sell its one-quarter stake in Fuji Xerox to Fujifilm Holdings Corp. for $2.3 billion. Both companies’ boards agreed to the deal, which will give Fujifilm 100 percent ownership of the 57-year-old joint venture.

As part of the deal, Fuji agreed to withdraw its $1 billion breach of contract lawsuit against Xerox. Xerox Vice Chairman and CEO John Visentin on Nov. 5 said the company would use funds from the sale to pursue mergers and acquisitions in core and adjacent industries, return capital to shareholders and pay down its $550 million debt, which matures next month.

Shares of company stock (NYSE: XRX) closed Friday at $38.94 and were trading at around $38.79 midday Monday.

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Xerox to sell stake in Fuji Xerox for $2.3 billion, continue work with Fujifilm

The feud between Xerox Holdings Corp. and Fujifilm Holdings Corp. may finally be over.

Fuji has agreed to acquire Xerox’s one-quarter stake in Fuji Xerox for $2.3 billion, the two companies said Tuesday. Both companies’ boards agreed to the deal, which will give Fujifilm 100 percent ownership of the 57-year-old joint venture.

“This transaction is an ideal next step for Fuji Xerox and Fujifilm that we believe serves our stakeholders well and reflects our commitment to create innovative products that contribute to society,” said Fujifilm Chairman and CEO Shigetaka Komori in a statement Tuesday. “Fuji Xerox has now become a lean and strong company after a series of reforms we started in 2018, and I am confident that with this initiative it will be even stronger.”

Fuji Xerox will operate as a wholly owned subsidiary of Fujifilm and will continue to supply to Xerox after completion of the transaction, Fuji officials said. As part of the deal, Fuji will withdraw its $1 billion breach of contract lawsuit against Xerox.

“These agreements reset our relationship with Fujifilm and provide both companies with tremendous opportunities to grow, together and independently,” said John Visentin, vice chairman and CEO of Xerox, in a statement. “These agreements also unlock significant unrealized value for our shareholders, provide greater clarity for our customers and help us speed our transformation to a digital-first company.”

It’s a sharp departure from Visentin’s words in June 2018.

“We cannot stand by and let them further harm our iconic brand,” Visentin said in a statement following the filing of Fuji’s lawsuit last year. “The lawsuit is nothing more than a desperate and misguided negotiating ploy to save their takeover attempt, which to this day remains enjoined by order of the New York State Supreme Court, and could take our focus away from serving our customers.”

Visentin had vowed at the time to not renew the company’s Fuji Xerox contract when it expires in 2021 and to source products from new vendors, a move he said at the time would create “enormous opportunity for Xerox to sell products directly into the growing Asia-Pacific market with sole and exclusive use of the valuable Xerox name, and a more efficient, better-managed supply chain than exists with Fuji Xerox today.”

The feud between the two companies began early last year when Xerox majority shareholders Darwin Deason and Carl Icahn called for Xerox to rethink its $6.1 billion deal with Fujifilm that would have given the Japanese company a 51 percent ownership stake in Xerox. Icahn and Deason arguably were responsible for the ousting of former Xerox CEO Jeff Jacobson, who had brokered the failed merger, as well as five of Xerox’s former board members.

With the merger off the table, Visentin and Komori went head to head, with Komori chastising Visentin for his bad manners.

The Xerox/Fujifilm partnership dates to 1962 when the two companies agreed to a 50/50 joint venture 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.

Visentin on Tuesday said Xerox would use funds from the sale to pursue mergers and acquisitions in core and adjacent industries, return capital to shareholders and pay down its $550 million December 2019 debt maturity.

Shares of Xerox stock (NYSE: XRX) were up nearly 6 percent at $36.63 in heavy volume Tuesday afternoon.

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Xerox earnings improve in Q4

Xerox Corp. on Tuesday posted mixed fourth quarter results, falling short of some Street estimates.

Revenue for the quarter ended Dec. 31 was $2.53 billion, a nearly 8 percent decrease from the fourth quarter last year. Net income for the quarter was $137 million, compared with a net loss of $190 million in the year-ago quarter. Adjusted earnings were $1.14 per diluted share, an 11-cent increase from the same quarter last year.

Full-year earnings were $3.46 per share, a 1-cent increase over 2017. Revenues were $9.83 billion for the full year, a decrease of 4.2 percent. Net income climbed to $361 million for the year from $195 million in the previous year.

Analysts polled by Zacks Investment Research had expected fourth-quarter EPS of $1.16 on revenue of $2.63 billion. Other Street estimates had pegged earnings at $1.04 per share on sales of $2.56 billion.

“Our Q4 results reflect continued progress on our strategic initiatives to optimize our operations, re-energize our innovation engine and increase shareholder returns,” said Xerox Vice Chairman and CEO John Visentin in a statement.

Xerox last year underwent a management shakeup following a failed merger attempt between the company and Fujifilm Holdings Corp., a longtime partner in another venture. The upheaval was led by activist investors Carl Icahn and Darwin Deason.

Following Visentin’s installation at the helm, as well as the appointment of a new board and other leadership, Xerox vowed to streamline its business.

“We remain focused on removing complexity in the way we work, organizing more effectively and creating a better customer experience, and we are seeing those efforts reflected in this quarter’s results,” Visentin said.

Net cash in the quarter was $415 million, a $564 million increase from the fourth quarter 2017. The company attributed the increase to the termination of all accounts receivable sales arrangements in North America and all but one in Europe during the fourth 2017.

Fourth quarter 2018 contract signings decreased 21.6 percent from fourth quarter 2017 to $747 million. For the full year, signings decreased nearly 13 percent to $2.37 billion, Xerox reported.

Net restructuring and asset impairment charges of $66 million during the quarter included $72 million of severance costs related to headcount reductions of 850 employees worldwide and $1 million of lease cancellation costs.

Worldwide employment was roughly 32,400 as of Dec. 31, 2018, and decreased by 2,900 from Dec. 31, 2017, largely driven by the document company’s business transformation. Half of the reduction was due to restructuring, while the remaining resulted from attrition, most of which are not expected to be backfilled, according to the earnings report.

Xerox’s board has approved an incremental share repurchase of $1 billion, and the company expects $300 million or more of share repurchases in 2019. The company expects adjusted earnings per share of $3.70 to $3.80 for full-year 2019. Separately, Xerox recently rebranded its Global Imaging Systems as Xerox Business Solutions. Company officials said the rebrand was a result of an increased focus on better serving the small- to medium-size business market with a more “client-centric, simplified and integrated approach” across the country.

“We are well positioned as we enter 2019 to continue to build on all our initiatives to deliver greater shareholder value,” Visentin said. “We look forward to sharing the details around our strategy and three-year financial expectations at our investor day on February 5.”

Shares of company stock (NYSE: XRX) were down slightly to $24.30 in heavy early morning volume Tuesday.

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Xerox reports drop in sales in first full quarter since shakeup

Xerox Corp. on Tuesday reported a drop in third quarter revenue and earnings, missing Street estimates for sales, but beating estimates for EPS.

In the first full quarter since its leadership shakeup in May, Xerox reported a nearly 6 percent year-over-year decline in revenue to $2.35 billion. For the third quarter ended Sept. 30, net income dropped by nearly half to $89 million. On a per-share basis, earnings fell to 34 cents from 69 cents in the third quarter last year.

Analysts polled by Zacks Investment Research had expected earnings of 77 cents on revenue of $2.42 billion.

“We are progressing on our priorities, which include optimizing our operations for greater simplicity, re-energizing our innovation engine and focusing on cash flow to drive increasing shareholder return,” Xerox Vice Chairman and CEO John Visentin said in a statement. Visentin was named CEO in May, following the ouster of then-CEO Jeff Jacobson.

Adjusted cash flow increased in the quarter to $157 million, while the company returned $284 million to shareholders through share repurchase. Xerox paid out $69 million in dividends in the third quarter.

“Work remains on the priority to drive revenue,” Visentin said. “Actions are underway to streamline the organizational structure, expand our channel presence and further differentiate our products and services to provide greater value to customers.”

The document company has taken a hit in recent years as the need for printers continues to decline. Equipment sales—which accounts for 22 percent of total revenue—in the quarter fell nearly 4 percent to $511 million.

Xerox reported $29 million in restructuring costs in the quarter.

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

In January, Xerox and Fujifilm had 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.

Through a series of majority shareholder-filed lawsuits and public condemnation, as well as an injunction blocking the merger, Xerox shelved the deal and replaced a number of executives and its board. Fuji, in turn, sued for breach of contract.

Last week’s reversal could give Fuji some leverage in new merger negotiations.

Shares of company stock (NYSE: XRX) closed Monday at $26.40 and were trading at 26.58 in heavy volume Tuesday morning.

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Fujifilm wins appeal in Xerox merger deal

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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Fujifilm chairman accuses Xerox CEO of bad manners

The Xerox/Fuji feud is looking more and more like a bad breakup.

Fujifilm Holdings Corp. Chairman Shigetaka Komori responded in kind this week to a “Dear John” letter from new Xerox Corp. CEO John Visentin, in which he detailed why the two companies could no longer be together.

“Our agreements to combine Xerox and Fuji Xerox were fairly negotiated at arms’ length by sophisticated parties and were unanimously approved by the boards of directors of both Xerox and Fujifilm,” Komori said in his letter to Visentin. “Although you desperately attempt to justify your unilateral termination of these agreements in your letter, we are confident that the court will see through your misleading misstatements and conclude what is obvious to objective observers: that your stated reasons for terminating our deal are merely a thinly veiled pretext to bargain for a higher price from Fujifilm at the behest of two minority shareholders.”

Fujifilm is suing the document company for more than $1 billion for breach of contract, stemming from the failed $6.1 billion merger that was announced in January. The Japanese photo and imaging giant in the June 18 complaint accused Xerox of engaging in “intentional and egregious conduct” in abandoning the merger.

As a result of the lawsuit, Visentin this week reached out to Komori, stating that Xerox would not “stand by and let them further harm our iconic brand.”

“No matter what you tell the Japanese media, it is abundantly clear that the bad actor here is Fujifilm, not Xerox,” Visentin said in his letter to Komori this week. “Fujifilm, as 75 percent owner and controlling partner of Fuji Xerox, has concealed from Xerox the true extent of a massive and ongoing accounting fraud at Fuji Xerox caused by Fujifilm’s own gross mismanagement.”

Fujifilm last year had acknowledged improper accounting standards at the Fuji Xerox subsidiary, which resulted in a $341 million adjustment to six years’ net profits and the resignation of Fuji Xerox Chairman Tadahito Yamamoto.

Komori in his letter said he would not “dignify every misstatement” in Visentin’s letter, but he did address the Fuji Xerox accounting debacle.

“As you very well know, Fuji Xerox has devoted extensive resources to ensure that past accounting issues have been properly resolved and there is no reason to assert that these issues continue to exist,” Komori said. “While you criticize Fujifilm as a shareholder of Fuji Xerox for its questionable accounting issue, you should note that Xerox is another shareholder of Fuji Xerox and it is (an) obvious mistake to accuse only one party of the joint venture for the accounting issue.”

Visentin earlier this week said Xerox will not renew its Fuji Xerox contract when it expires in 2021 and the company will move to accomplish three things:
• Xerox will start, in a material way, to source products from new vendors.
• Xerox will build partnerships with companies that are aligned with Xerox’s mission to provide world-class technology and solutions.
• Xerox believes the company will be much better served by not renewing its Technology Agreement with Fuji Xerox when it expires.

“As for your stated intent to not renew the Technology Agreement in 2021 and conduct business in the Asia Pacific market, we are prepared to respond by competing with Xerox here in Asia Pacific, and by marketing in territory where Xerox is currently doing business unchallenged by us, such as America and Europe,” Komori responded. “While Xerox presently has no marketing facilities here in Asia Pacific, we have global infrastructure that we can utilize for marketing worldwide. Accordingly, we believe it would be enormously costly and difficult for Xerox to gain business in Asia Pacific.”

Komori in his letter also pointed out Visentin’s bad manners in failing to attend Fuji Xerox’s June 20 annual shareholders’ meeting and board meeting, as well as publicizing his letter to Komori before Komori had received it.

“This is impolite and wrong, and I hope our communications will be in a more respectful manner going forward,” Komori wrote.

Xerox declined to comment on Komori’s letter.

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Fujifilm sues Xerox over collapsed merger

Fujifilm Holdings Corp. is suing Xerox Corp. for breach of contract over the failed merger earlier this year. Fuji is seeking more than $1 billion in damages.

In a complaint filed with the U.S. District Court in Manhattan Monday, Fuji accused Xerox of engaging in “intentional and egregious conduct” in abandoning the $6.1 billion merger announced in January, Reuters reported.

Fujifilm also is seeking a declaration that Xerox owes it a $183 million fee for terminating the merger.

As part of an agreement with major shareholders Darwin Deason and Carl Icahn, Xerox in May announced that John Visentin had been named CEO and vice chairman of the company’s board of directors, while Keith Cozza was elected chairman.

Xerox had earlier said it ended its acquisition agreement with Fuji Xerox 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 witness testimony in litigation brought against Xerox and its leadership by Deason, it was discovered that then-CEO Jeff Jacobson, after being told his job was on the line and to stop negotiations with Fuji, worked out a structured transaction, rather than an all-cash deal, in which Fuji would end up owning a 50.1 percent controlling interest in Xerox.

In an April 27 decision blocking the merger, Justice Barry Ostrager wrote: “This transaction was largely negotiated by a massively conflicted CEO in breach of his fiduciary duties to further his self-interest and approved by a board, more than half of whom were perpetuating themselves in office for five years without properly supervising Xerox’s conflicted CEO.”

As part of the agreement with Deason and Icahn, Jacobson resigned from his role as CEO and as a member of Xerox’s board. Xerox appointed five new members to its board, and Robert Keegan, Charles Prince, Ann Reese, William Hunter and Stephen Rusckowski each resigned from the board.

“Xerox has recently been subject to the whims of activist investors Carl Icahn and Darwin Deason, who, notwithstanding their minority ownership of Xerox shares, have yanked the Xerox Board in more directions than can be counted,” Fujifilm said in its lawsuit.

Xerox officials in a statement said: “We remain extremely confident that the former Board correctly exercised its clear contractual right to validly terminate the transaction agreements due to, among other things, the continuously expanding unresolved accounting issues at Fuji Xerox. Xerox will vigorously defend its decision and pursue any and all remedies available to Xerox arising from Fujifilm’s mismanagement and misconduct. The Xerox Board of Directors is committed to driving the best path forward to maximize value for shareholders.”

Shares of Xerox stock (NYSE: XRX) closed Monday at $27.24, down 17 cents from Friday’s closing.

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Deason claims inappropriate actions by Xerox’s Jacobson

An 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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Tag: fuji

Xerox Q4 earnings beat Street estimates, HP not impressed

Xerox furthers hostile takeover bid in HP shareholder presentation

HP rejects Xerox takeover proposal, recognizes benefit of ‘potential combination’

Xerox to sell stake in Fuji Xerox for $2.3 billion, continue work with Fujifilm

Xerox earnings improve in Q4

Xerox reports drop in sales in first full quarter since shakeup

Fujifilm wins appeal in Xerox merger deal

Fujifilm chairman accuses Xerox CEO of bad manners

Fujifilm sues Xerox over collapsed merger

Deason claims inappropriate actions by Xerox’s Jacobson