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Xerox Crumbles Under Pressure from Icahn, Deason

In a major victory for the activists, Xerox will replace its CEO and six board members, and reconsider a merger with Fujifilm.

Carl Icahn’s and Darwin Deason’s activist campaign against Xerox Corp. has succeeded after a tumultuous fight.

Xerox has settled with Icahn, Deason, and institutional investors by appointing six new board members, ousting its chief executive officer, and agreeing to reconsider a deal it had previously negotiated with Fujifilm, according to an announcement from Xerox late Tuesday.

“With new leadership in place, we believe Xerox will be much better positioned to take advantage of multiple potential value-enhancing opportunities, including restructuring its relationship with Fujifilm, our supposed ‘partner’ whose conduct over the last year is more unbelievable than what you see on fictional TV shows like House of Cards or Billions,” Icahn said in a statement. 

Icahn launched a campaign to elect four new members to Xerox’s board in December 2017. Following that, Deason brought two court cases against Xerox. The first, filed on February 18, sought to stop the Fuji-Xerox deal from going through. The second, which came on March 2, sought allowance to submit a full slate of directors, despite his missing a deadline to do so.

[II Deep Dive: Court Documents in Icahn-Deason-Xerox Fight Reveal Boardroom Battles]

Icahn owns a 9.2 percent stake in Xerox, and Deason, holds 6 percent. 

“Most people like [Icahn] come in and are kind of agitating, but Xerox needed to be agitated,” said a source with knowledge of the company. “The board was weak.”

Institutional shareholders, including the Carpenters Pension Fund of Illinois and Philadelphia’s funds for asbestos and iron workers, joined Deason in the lawsuits.

On Tuesday, the New York State Supreme Court judge barred Xerox from completing its fraught $6.1 billion sale to Fujifilm. 

Under the initial terms of that deal, Fuji would have paid Xerox shareholders approximately $2.5 billion as a special cash dividend, and the shareholders would receive 49.9 percent of the combined 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 Fuji Xerox. In the lawsuit, Deason alleged that Xerox CEO Jeff Jacobson worked with Fuji to preserve his position, circumventing the board’s wishes for him to step down. 

“Xerox shareholders alleged Fuji leveraged the desire of Xerox CEO Jeff Jacobson to keep his job after the board had threatened to fire him to obtain a sweetheart deal for itself and at Xerox investors’ expense,” according to a press release from the legal teams representing Xerox shareholders. The law firms included Grant & Eisenhofer, Bernstein Litowitz, and Kessler Topaz. 

Fuji is not out of legal hot water yet, a lawyer for Deason and the institutional investors, Jim Woolery of King & Spalding, said by phone. “We had internal Fuji documents that were damning that showed they had a conspiracy,” Woolery said. “They’re fully liable as if they’re Xerox.”

Those documents include a letter from a Xerox board member to the chairman of the board calling Jacobson a “rogue CEO.”

“When I saw that, I thought, they got big problems,” said the source close to Xerox, who declined to be named.

According to Woolery, the next step for Fuji is a pre-trial hearing on May 22. A Fuji spokesperson could not immediately be reached for comment. 

Now, Xerox will explore strategic alternatives, which could include a sale. Whether or not Xerox sells to Fuji, though, remains to be seen. 

“After careful consideration of shareholders’ feedback on the proposed combination with Fuji Xerox, Xerox approached Fujifilm regarding a potential increase in consideration to be received by Xerox shareholders,” according to a statement from Xerox. “As yet, Fujifilm has not made a proposal to enhance the transaction terms.”

Xerox’s new board members are incoming CEO John Visentin, Keith Cozza of Icahn Enterprises, Nicholas Graziano of Icahn Capital, Scott Letier of Deason Capital Services, Jay Firestone of Prodigy Pictures, and Randolph Read of Nevada Strategic Credit Investments.

To make way for the new directors, six members agreed to step down: Robert Keegan, Charles Prince, Ann Reese, William Curt Hunter, Sara Martinez Tucker, and Stephen H. Rusckowski. Three board members have kept their seats, including Gregory Brown, Joseph Echevarria, and Cheryl Krongard, who wrote the letter sounding an alarm on Jacobson.

“The three directors that remain are people that in some way, shape, or form touched Icahn,” the source said. “They’re going to go through a pretty thorough exploration of what they should do with the company. The sad thing is that Xerox has been moving sideways for 20 years.”

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