FUJIY FUJIFILM Holdings Corporation (PK)

By David Benoit 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 5, 2018).

Xerox Corp. was thrown into turmoil overnight as an agreement with two of its biggest investors that would have fired its chief executive and most of the board collapsed, a turn of events that sets up a summer of drama over the American icon.

Late Thursday the company announced its pact with the activists was expiring 48 hours after it was struck but before it was approved by a judge, leaving in place Xerox's existing directors and Chief Executive Jeff Jacobson.

The company is now facing a shareholder fight with Carl Icahn and Darwin Deason, its largest and third-largest investors who control about 15% of the stock, that will seek to upend its entire board. That campaign will be run against a backdrop of a deal in limbo, as a signed transaction to sell control to Japan's Fujifilm Holdings Corp. has been temporarily blocked by a judge and faces an uncertain future if it can't be renegotiated.

All this, while the company will be led by a chief executive, Mr. Jacobson, whom the board has essentially fired twice in his 18 months on the job and a 10-person board, seven of whom had agreed to resign Tuesday.

"Xerox and its board of directors recognize the uncertainty caused by the developments of the past several days among the company's investors and other stakeholders," its statement said.

In January, Xerox announced a complicated merger that would cede control to Fujifilm. The deal would trade Xerox's 25% ownership of their 60-year joint venture to Fujifilm for 49.9% of a new company that combines all of Xerox with the joint venture. Xerox shareholders would also be paid $2.5 billion total in a special dividend, equal to $9.80 a share.

The Xerox board let the settlement agreement with Messrs. Icahn and Deason expire Thursday night because it felt the judge had given it more flexibility to reach a new deal with Fujifilm than they originally believed, according to a person familiar with the matter.

The board believes other shareholders, apart from the activists, would support a bumped deal, giving the directors a narrow chance to save the transaction, the person said. The board was emboldened by a 12% drop in Xerox's stock price this week after the settlement put the Fujifilm deal in peril, the person added.

Fujifilm and Xerox had been renegotiating to add another $5 a share to the dividend, people familiar with the matter said. The turmoil of the past few days could reopen the deal negotiations entirely, including changing the structure, the person said.

Messrs. Icahn and Deason on Friday said the board failed to live up to its shareholders, urged them to fire Mr. Jacobson -- again -- and terminate the Fujifilm deal. The activists intend to nominate a full board slate of 10 new directors and continue suing the current directors personally. They say the deal undervalues the company.

Mr. Deason filed a lawsuit to block the deal and win the right to run a board fight. The suit alleged Mr. Jacobson had raced to seal the deal to protect his own job. Documents and communications disclosed in the lawsuit showed the board in November had neared replacing Mr. Jacobson with John Visentin, a longtime technology executive, and told Mr. Jacobson to halt negotiations with Fujifilm.

The judge last Friday night agreed with the investor, issuing the temporary block until he determined whether the deal would be permissible. The judge said Mr. Jacobson was "massively conflicted" in his deal negotiations and that the board's defenses were "not credible." He argued they had breached their fiduciary duty to investors for their own self interest.

Xerox has said it kept Mr. Jacobson after performance improved, that chairman Robert Keegan had agreed he could keep negotiating, and that the whole board backed the deal. On Friday morning, Xerox filed to appeal the judge's decision.

A deal sweetened with a higher dividend would be unlikely to placate Messrs. Icahn and Deason, who take issue with the structure of giving up control and want to run a full sale process to find another bidder, or push Fujifilm to buy all of Xerox, people familiar with their plans said.

"Judging by how Fuji took advantage of the Xerox board, and generally how they dealt with Xerox over the last 20 years, you've got to be worse than naive to believe you're going to get any more money if Fuji's in control," Mr. Icahn said in an interview this week.

Fujifilm faces its own shareholder pressure to avoid adding much cash to buy the printing and paper business, however: Its shares slumped when it said this week it would fight for the deal. Fujifilm said Friday it would continue to request that Xerox's board fulfill the original deal.

Xerox's board two days ago said the judge's ruling had left it believing the best option was the settlement with the investors, which handed them six board seats and replaced Mr. Jacobson with Mr. Visentin. The new board was expected to then try to terminate or restructure the Fujifilm deal while exploring other potential deals or going it alone.

Now, a board vote will be held first with the potential for the entire slate to be changed, a campaign that will largely be based on whether shareholders want the deal or not. If the activists win, they could still try to terminate the deal. If the company wins, it would still face a subsequent vote on the deal.

Messrs. Icahn and Deason blasted the board again Friday, saying, "The brazen self-interest of the Xerox Board defies description."

They signed off their statement with a social media allusion that hints at their plan of attack for the board fight: "#lameduckboard, #lameduckCEO."

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

May 05, 2018 02:47 ET (06:47 GMT)

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