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Court Documents in Icahn-Deason-Xerox Fight Reveal Boardroom Battles

A Xerox board member referred to CEO Jeff Jacobson as a “rogue executive,” according to new documents released by activist shareholder Deason, who is seeking to block a Fuji-Xerox tie-up.

The ongoing battle between Xerox Corp. and activist investors Carl Icahn and Darwin Deason heated up on Thursday, with newly disclosed court documents claiming a Xerox board member said the company’s proposed merger with Fujifilm was a process helmed by a “rogue executive.”

The documents include a letter — written by one of Xerox’s board members, Cheryl Krongard, and dated December 7 — that said CEO Jeff Jacobson placed the company in a “precarious situation” with its potential buyer. A presentation from Deason included in the documents also claimed that Xerox’s board had received an inquiry from Hewlett-Packard about a possible deal in January but that Jacobson and Xerox’s board did not give HP enough time and told the company it had to make a proposal “aggressively and quickly.”

The documents, part of an amended complaint Deason filed on Thursday, were included in previously redacted materials released by the Supreme Court of New York County.

According to Krongard’s letter, which was written to Xerox’s chairman, Bob Keegan, Jacobson was told by Keegan that the board was “disappointed by his performance and would likely look at outside talent.” In keeping with that, they asked Jacobson to stop seeking a deal with Fuji, but “he blatantly violated a clear directive” and continued the conversations, the letter said.

When asked for comment on the letter, Xerox spokesperson Carl Langsenkamp said via email that after writing it, Krongard said she learned that Keegan had given Jacobson permission to negotiate with Fuji.

 “As is absolutely clear from the record, Jeff Jacobson has always conducted himself with the utmost integrity as CEO and in negotiations with Fujifilm,” Langsenkamp wrote in the email. “The allegations by Mr. Deason to the contrary are part of his effort to distort the facts.”

Hewlett-Packard did not respond to an email seeking comment about its offer, and Langsenkamp declined to comment on this aspect of the story.

According to the terms of the proposed deal, announced on January 31, Fuji will acquire Xerox for $6.1 billion and combine it into an existing joint venture. Fuji will pay Xerox shareholders approximately $2.5 billion as a special cash dividend, and they will receive 49.9 percent of the company. This amounted to $9.80 per share, according to Xerox’s announcement of the deal. In return, Fuji would receive 50.1 percent of the combined company. Fuji did not return a phone call seeking comment on the deal.

Prior to the deal’s announcement, Icahn had increased his stake in Xerox to 9.2 percent. Deason, meanwhile, owns a 6 percent stake in the company, and had been Xerox’s largest shareholder until Icahn invested in the company in 2015.

According to a presentation opposing the deal created by Deason and Icahn and published on April 17, Fuji “would receive $120 million more in annual dividends from Xerox ‘without spending a penny.’” The deal would also allow Jeff Jacobson, the CEO of Xerox, to control the resulting combined company, according to Xerox’s announcement.

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According to Deason’s presentation released Thursday, Jacobson’s motives for ensuring that Xerox and Fuji inked a deal were based on this particular provision.

“Negotiations were led by a conflicted Xerox CEO, who betrayed shareholders by ‘serv[ing] as a loyal agent of the acquirer’ in ‘a process that ignore[d] other bidders’ and was conducted without a proper market check,” stated the presentation created for shareholders by Deason and Icahn.

The deal negotiations between Fuji and Jacobson continued, despite Xerox’s alleged attempt to find a new CEO.

Icahn launched a campaign to elect four new directors to Xerox’s board in December 2017. Since then, Deason has filed two court cases against Xerox. The first, filed on February 18, sought to stop the Fuji-Xerox deal from going through. The second, filed on March 2, is seeking that the court allow him to submit a full slate of directors, despite missing the deadline to do so.

The next hearing on these cases, which are being administered jointly, will be on April 26, according to a source familiar with the matter. The date for the proxy vote has not yet been set, but will likely take place in May or June. Proxy advisers Glass Lewis and Institutional Shareholders Services have not yet offered voting recommendations to Xerox shareholders, that source said.

Icahn did not immediately return a phone call seeking comment on the issue. Deason declined to comment beyond the documents released Thursday.

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