In a controversial move, Fujifilm revealed earlier this year that they would be taking control of Xerox with a $6.1 billion deal. This caused a stir amongst shareholders, who were not all too welcoming of this announcement. Recently, there have been discussions of the deal being renegotiated. This is in part a result of the reaction and activists that emerged in response to the announcement.
With the planned deal, the companies would be combining as part of their joint venture: Fuji Xerox. The announcement was made in January, and many significant shareholders stood in opposition to this decision. At the time the deal was announced, the US Xerox group was worth $8.3 billion in market value.
The American photocopier and printer business had battled with a decrease in revenues as the economic climate and nature of the industry has progressed prominently in recent years. Many businesses are failing to keep up with it.
Back when the terms of the deal were being decided on, many executives of Xerox made complaints and voiced their qualms. There has been considerable ongoing unrest regarding the matter.
Some have accused the photocopier company of rushing into selling itself with too much haste, in response to the difficulties being faced. Other more serious accusations of self-preservation at the expense of shareholder value have been directed towards Xerox chief executive Jeff Jacobson.
So what steps had been planned out in order to execute this overhaul of Xerox to Fujifilm? The process of the joint venture was intended to be accomplished in three phases:
- To begin, Fuji Xerox would buy the 75% stakes in the joint venture belonging to Fujifilm using a bank loan of $6.1 billion.
- Japanese company Fujifilm would then obtain 50.1% of Xerox with their proceeds.
- Eventually, there would be a complete merger of Fuji Xerox and Xerox.
Critics argue that the structure of this plan was biased. Darwin Deason, who is Xerox’s largest individual shareholder and third largest overall shareholder, believes that the deal is unjust and blatantly favours Fuji.
In addition to Deason, Carl Icahn, an activist investor based in New York, has been fighting against the deal. Icahn proposed an ultimatum that Xerox either renegotiates or terminates the deal with Fujifilm Holdings.
Deason and Icahn joined up to demand that American company Xerox should put itself up for sale. They argue that the deal not only is overly biased in Fuji’s favour, but that is also undervalues Xerox.
In February, Deason went as far as to sue Xerox with an accusation of fraud. One of the allegations made was that the joint venture contains a hidden lock-up which was kept unknown to shareholders up to the point of the transaction being consummated. Fuji would be granted complete ownership of Xerox’s manufacturing rights in the Asia and Pacific Rim markets (worth $36 billion) and intellectual property if Xerox decided to sell to another prospective buyer.
In court, Deason also brought up a 2010 scandal involving improper accounting practices surrounding the fusion of the two firms.
At the time, Xerox responded that these complaints had no merit, and that the Xerox Board of Directors were still extremely confident in the plan for merger with Fuji Xerox. Last Thursday, during a hearing, lawyers representing the two companies stated that “active talks” about the plans are in process.
It is likely that the ongoing pressure from prominent shareholders has contributed to this decision. Yet it is not yet clear whether the talks will lead to a new, revised version of the deal.
Fujifilm chairman and group chief executive officer Shigetaka Komori has previously defended the joint venture. “We believe Xerox’s corporate value will increase with this merger so I think the shareholders will give their consent,” is what he said back in January, when questioned about how activist investors will receive the Fuji Xerox merger at a news conference in Tokyo.
“Better together” is the mantra of the Fuji Xerox joint venture campaign. The relationship between the two companies has a long history, starting with their very first copier joint venture over 50 years ago. But protests from shareholders and talks of revising the deal cast doubt on the supposedly steadfast Fuji Xerox merger.