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Xerox defeat offers Fujifilm hope?

October 18, 2018

Fujifilm has won its appeal against the American OEM, with the preliminary injunctions overturned.

The appeal was lodged after Xerox – following pressure from billionaire shareholders Carl Icahn and Darwin Deason – scrapped a much-vaunted joint venture with Fujifilm, in a saga that ended with the removal of Xerox’s CEO, Jeff Jacobson.

Nikkei Asian Review reports that the ruling by the New York State Appellate Court “could give Fujifilm leverage to bring Xerox management back to the negotiating table,” after ruling that Jacobson had neither misled nor misinformed the American company’s Board of Directors.

“The board, which engaged outside advisors and discussed the proposed transaction on numerous occasions prior to voting on agreeing to present it to the shareholders, did not engage in a mere post hoc review, nor was the transaction unreasonable on its face,” the ruling stated.

Responding in a statement, Fujifilm reasserted its view that the original merger was the best option for both companies’ shareholders.

“We are very pleased with the New York State Appellate Court’s decision, which ends the lawsuit against Fujifilm in its entirety and validates our position that Fujifilm acted properly and negotiated with Xerox at arms’ length,” the statement read. “[The] Court’s decision will allow us to discuss with Xerox the fulfilment of the original agreement. All Xerox shareholders ought to be able to decide for themselves the operational, financial, and strategic merits of the transaction to combine Fuji Xerox and Xerox.”

The original merger was scuppered after Icahn and Deason launched a protracted and increasingly hostile campaign to convince Xerox’s shareholders that the company was being undervalued by Fujifilm. The two men, who between them own 15 percent of the OEM, have not yet commented on the new ruling, although they still have the option of appeal, taking the verdict to the New York State Supreme Court. However, according to a lawyer quoted by Nikkei, “it is not likely that Deason will appeal.”

This latest development theoretically means that Fujifilm can now legally demand that Xerox fulfils the terms of its contract, and continues with the deal.

However, in the fallout of the collapse earlier this year, a swathe of Xerox’s Board of Directors – including Jacobson – were replaced by figures loyal to Icahn and Deason, right up to the new CEO, John Visentin. As Nikkei points out, “it is therefore unlikely that Xerox will agree to the initial merger.”

If they are faced with point blank refusal, Fujifilm’s only option if it is to save the takeover at all will be to compromise – although any change to the deal with require fresh approval from its shareholders, “a step the company wants to avoid.”

In July, Fuji CEO Shigetaka Komori seemed to shrug off the saga, saying that the merger with Xerox was “not essential to Fujifilm’s growth”, although this latest legal green light for the Japanese company might prompt a change of opinion.

As for Xerox shareholders, the now-trashed injunction originally prevented them from officially voting on the agreement – but any future compromise or proposal will need shareholder approval from them, too.

In a further contortion, Fujifilm is now demanding compensation from Xerox for cancelling the contract. Nikkei speculates that “if the two companies cannot reach an accord, Fujifilm may give up on the merger and turn to suing for damages.”

It seems that the epic battle of the year has not finished yet.

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