Carl Icahn’s and Darwin Deason’s victory over Xerox Corp. was short-lived, as the company has gone back on the May 1 agreement to replace its CEO and six board members, according to the activist investors.
According to an open letter from Icahn and Deason to Xerox shareholders sent late Thursday, the company allowed the deal announced earlier this week to expire, effectively leaving in place the board and chief executive officer.
“This inexplicable turn of events occurred for one reason only: the Xerox board recklessly refused to follow through with the leadership and governance changes we agreed to, demanding unprecedented additional approvals for their own personal self-interest,” the two activist investors wrote in their shareholder letter.
The agreement had stipulated the appointment of six new board members and a new CEO, and reconsideration of its previously negotiated takeover by Fujifilm.
[II Deep Dive: Xerox Crumbles Under Pressure from Icahn, Deason]
“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,” the embattled company said late Thursday in a statement. The board and CEO Jeff Jacobson will remain in place, Xerox confirmed.
The initial deal announcement included a provision for making an appeal, which Xerox filed in the Supreme Court of the State of New York on Friday.
Jacobson’s attempted tie-up with FujiFilm was a major flashpoint in Deason and Icahn’s activist fight. Under the initial terms of the $6.1 billion 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.
Icahn, who owns a 9.2 percent stake in Xerox, launched his campaign in December 2017, seeking to nominate four people to Xerox’s board.
Following that, Deason, who owns a 6 percent stake, filed two court cases against Xerox: one to stop the Fuji-Xerox deal from going through, and the other to submit a full slate of directors, despite missing a deadline to do so. In the lawsuit, Deason alleged that Jacobson worked with Fuji to preserve his role as CEO, circumventing the board’s wishes for him to step down.
Institutional shareholders — including the Carpenters Pension Fund of Illinois and Philadelphia’s funds for asbestos and iron workers — joined Deason in the litigation.
The activists asserted victory earlier this week, touting their win in the press.
“Icahn was kind of gloating,” said James Kelleher, managing director at Argus Research, by phone. “He was not gracious in victory.”
According to Kelleher, the most important element at play for Xerox is the Fujifilm deal. The firms’ joint venture, which dates back to 1962, has been effectively allowing Xerox to use Fuji’s technology for years. Without it, according to Kelleher, Xerox could further falter.
“That would be extremely disruptive,” he said. “There’s a complete reliance on the technology.”
It’s unclear where Xerox’s appeal leaves Fuji. A lawyer for Deason told Institutional Investor on May 2 that the company will appear in a pre-trial hearing on May 22. A Fuji spokesperson did not return a phone call seeking comment.