Fujifilm sues Xerox for $1bn over failed deal

Bloomberg

Fujifilm Holdings Corp. accused Xerox Corp. of caving to the whims of Carl Icahn and Darwin Deason in backing out of a $6.1 billion takeover deal.
Fujifilm sued Xerox in Manhattan federal court over the failed takeover, seeking more than $1 billion in damages. Xerox walked away from the deal on May 13.
“This change of heart is undoubtedly due to external pressures,” Fujifilm said in the complaint. “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.” Representatives for Icahn and Deason weren’t immediately available for comment.
Xerox said in an emailed statement that it’s “extremely confident” the former board acted correctly in terminating the transaction, “due to, among other things, the continuously expanding unresolved accounting issues at Fuji Xerox,” the companies’ joint venture.
Icahn and fellow billionaire Deason had argued the Fujifilm offer undervalued Xerox. The pair, who collectively held about 13 percent of Xerox, reached a settlement with the company after months of public fighting over the merits of the Fujifilm transaction.
Under the terms of the settlement, Norwalk, Connecticut-based Xerox pulled out of the Fujifilm deal and Keith Cozza, chief executive officer of Icahn Enterprises, became the company’s chairman. John Visentin replaced Jeff Jacobson as Xerox’s CEO. The newly filed lawsuit and other litigation might drive Xerox bonds into junk territory, Robert Schiffman, Bloomberg Intelligence senior credit analyst, and Mike Campellone, BI credit associate analyst, said in a note. “If a white-knight strategic buyer doesn’t emerge, non-investment grade rating action risk looms large,” the analysts said. Moody’s rates Xerox’s debt Baa3, the lowest investment-grade rating.
Deason sued Xerox in Feb in Manhattan state court to block the acquisition, accusing Jacobson of acting without authorisation to strike a deal that prese- rved his job at shareholders’ expense. The lawsuit also claimed that the company’s board breached its fiduciary duties.
A judge issued an injunction in April barring Xerox from holding a shareholder vote on the proposed merger at its annual meeting, now scheduled for July. Yet, Fujifilm hasn’t given up on the deal. In May, the company appealed. Fujifilm, based in Minato-Ku, Japan, has also asked the state court to dissolve the injunction.
The proposed merger, announced in January, would have cemented a longtime relationship between the two firms, which have operated the joint venture Fuji Xerox Co. for the past 50 years.
The deal would have generated “billions of dollars in synergies,” lawyers for Fujifilm said in the complaint. The transaction is “value-enhancing for Fujifilm’s shareholders and thus Fujifilm is compelled to take steps to protect its rights.” The company accused the Xerox board of breaching terms of its January agreement “thanks
in no small part to Icahn and Deason’s machinations.”