Xerox-Fujifilm Deal Temporarily Blocked by New York Judge

(Bloomberg) -- Xerox Corp.'s plan to sell itself to Japanese rival Fujifilm Holding Corp. was temporarily blocked by a New York judge who determined the chief executive officer behind the deal was trying to preserve his own job.

Investor Darwin Deason sued to block the transaction, accusing CEO Jeffrey Jacobson of acting without authorization to strike a deal with Fujifilm that preserved his job at the expense of shareholder value. Xerox labeled that claim “highly disingenuous” and asked the judge to deny Deason's request for a court order blocking the deal. The company said in a statement that it would appeal the decision.

Judge Barry Ostrager said in his order Friday that Xerox's existing joint venture with Fujifilm would have made it difficult but not impossible to pursue another deal that would have required a buyer to provide a cash payment to Xerox investors.

The facts “clearly show that Jacobson, having been told on Nov. 10 that the board was actively seeking a new CEO to replace him, was hopelessly conflicted during his negotiations of a strategic acquisition transaction that would result in a combined entity of which he would be CEO,” Ostrager said. “There is ample evidence that he collaborated with Fuji to make himself indispensable to the transaction.”

Deal Terms

Under the terms of the deal, announced in January, Xerox, which has a market value of $7.7 billion, would first merge with a joint venture that the company operates with Fujifilm in Asia. Current Xerox shareholders would receive a cash dividend of $9.80 per share. Tokyo-based Fujifilm would ultimately end up owning 50.1 percent of the combined entity, which would expand the joint venture to encompass all of Xerox's operations.

Deason, described in the ruling as Xerox's third-largest shareholder with a $600 million stake, argued that the deal fails to maximize value for investors. Carl Icahn, identified in the order as Xerox's largest shareholder, also opposed the deal.

“I am grateful the court acted to protect the shareholders of Xerox,” Deason said in a statement released after the ruling. “Beyond that, we still have a lot of value to create at Xerox and I intend to focus my efforts there.”

Ostrager's ruling keeps the transaction from proceeding before a final ruling is made in Deason's lawsuit. The judge also granted a request to block Xerox from enforcing rules restricting board nominations, so that the investor can now notice a slate of directors for the company's 2018 annual meeting.

‘Best Path'

“Xerox's board believes that a combination with Fuji Xerox is the best path forward to create value for the company and all of its shareholders,” according to a statement issued on Saturday in which the company said it will “immediately appeal the court's decision.”

Fujiflim is considering its options, including whether to appeal the decision, a spokeswoman for the company said.

“Xerox shareholders should be able to decide for themselves the operational, financial and strategic merits of the transaction,” she said. “Fujifilm negotiated with Xerox at arm's length to create a transaction combining Xerox and Fuji Xerox that is the only option to provide shareholders of both companies with exceptional short- and long-term value.”

Xerox had argued in a court filing that Jacobson didn't have a conflict of interest and New York law didn't allow Deason and his lawyers at King & Spalding to second-guess the board's business judgment.

“Jeff Jacobson has always conducted himself with the utmost integrity as CEO and in negotiations with Fujifilm,” Xerox's board said in an earlier statement. “At no point did he exceed the authority granted to him by the board's chairman or the full board.”

--With assistance from Alex Longley

To contact the reporter on this story: Ed Hammond in New York at ehammond12@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Steve Geimann

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