Xerox doubles down on Fuji deal and its CEO, will appeal court ruling

Xerox Corp. announced Friday that it would appeal a judge's injunction temporarily blocking a deal with Fujifilm, indicating that the company intends to continue to pursue the merger despite outcry from its top shareholders.

The company argued that because the board unanimously voted to approve the Fuji transaction, the judge had no legal grounds to "disregard the board's considered business judgement in this case." In doing so, he was "disenfranchising" Xerox shareholders from their opportunity to vote on the transaction, the appeal opined.

"This is turmoil at its finest," said Keith Kmetz, an analyst in the print market with the International Data Corporation.

Late Thursday, a deal that would have removed Xerox Corp. CEO Jeffrey Jacobson and some of its board members expired, leaving the company's management team in place — at least for now.

"The appeal disputes the court’s finding that the Xerox board breached their fiduciary duties in approving the transaction," the company said in a statement. "To the contrary, the Xerox board unanimously authorized the transaction after months-long discussions and deliberations, and based on its good faith judgment that the transaction represented the value-maximizing alternative for the company’s shareholders."

The backstory

This development comes just days after the company announced that Jacobson and half of its board of directors had agreed to step down. The boardroom shake-up was part of a settlement agreement with activist shareholders Carl Icahn and Darwin Deason, who had grown increasingly unhappy with the company's direction.

The agreement would have become effective upon "execution of stipulations discontinuing the Deason litigation with respect to the Xerox defendants," according to a statement released by Xerox.

In the absence of such stipulations, the agreement expired at 8 p.m. May 3.

According to a joint statement released Friday morning by Icahn and Deason, the agreement fell apart when Xerox failed to follow through on the steps they'd agreed to.

"An expansive release from us and the Company was not enough. Fully insured, robust indemnification rights were not enough," the statement said. "The Xerox board declined to take the actions they unanimously approved as in the best interest of Xerox shareholders unless they obtained additional unprecedented protections from the court, which all parties (and the judge) agree are not required under applicable law."

Deason and Icahn also said that by failing to take action, the board of directors was "once again intentionally violating their fiduciary duties to Xerox shareholders by pursuing their own brazen self-interest."

Icahn and Deason have laid siege to Xerox in recent months, pushing for a proxy fight at the company's upcoming annual meeting and filing lawsuits that took aim at the company's relationship with Fujifilm Holdings. They sought to end Xerox's decades-old joint venture with Fuji and the proposed merger, which would have given the Japanese technology company majority control of Xerox.

In a lawsuit filed last month, Deason alleged that Jacobson continued negotiating with Fujifilm on the deal after the board of directors instructed him to stop, and after they had commenced a search for his replacement. Deason also accused the board of rushing to approve the transaction when there was no reason to, other than to head off a potential proxy battle with Icahn.

Where do we go from here?

While proxy battles like this are not uncommon, they typically take place at smaller companies on a smaller scale — this one involves legacy titans and is playing out for the world to see, said John Calia of Fairport, an Vistage executive coach with decades of experience in banking and entrepreneurship. Calia is a former citizen member of the Democrat and Chronicle's editorial board.

Icahn has "a focus solely on shareholder value, at any cost," said Calia, noting that Icahn and Deason aren't necessarily against the Fuji merger as a concept.

"They're against the merger at this price," he said. "This might simply be a way of them extracting more money out of Fuji."

As questions swirl about where Xerox leadership stands and whether the Fuji merger will go through, the question Xerox executives should be asking is, 'Where are we going as a company?' said Kmetz of the International Data Corporation.

While print is still a colossal industry on a global scale, tech and business services companies should be aggressively pivoting into services or products for the "office of the future," he said.

"(The print industry) has to participate in a different computing landscape as IT evolves," said Kmetz. "But I haven't heard that from Xerox. So what is the plan?"

Shareholders should decide for themselves whether they trust the current CEO and some of the board members, who agreed to resign earlier this week but are now back in charge, said Kmetz.

"The (court) documents say what the documents say ... and they don't paint a pretty picture or perception of Jeff (Jacobson,)" he said.

Icahn and Deason have indicated that they intend to hold Jacobson and several Xerox directors "fully and personally liable for their misconduct," and Fujifilm "fully liable as an aider and abettor of the continuing breaches of fiduciary duties by those directors," according the shareholders' statement.

In the statement released late Thursday by Xerox, the company said it recognized the uncertainty caused by the developments of the past several days among the company’s investors and other stakeholders.

"The Xerox Board and management team remain focused on driving continued improvement in financial and operational performance, and will consider all options to create value for the company and its shareholders," according to the statement.

All the uncertainty is likely putting shareholders and rank-and-file employees in an apprehensive holding pattern, and may cause competitors to start circling, said Kmetz.

"I would hope we get to some resolution soon so that everybody’s on the same page on where are we going and what are we doing," he said. "Right now, absolutely nobody can answer that question. And that's not a great place to be."

SLAHMAN@Gannett.com

STADDEO@Gannett.com

From Tuesday: Xerox CEO Jeff Jacobson, others resign after agreement with Carl Icahn, Darwin Deason

More: Xerox releases Q1 earnings: Revenue down 0.8 percent