(Bloomberg) -- Xerox Corp. shares fell after activist investors Carl Icahn and Darwin Deason prevailed in their bid to stymie Fujifilm Holdings Corp.’s $6.1 billion takeover of the U.S. office equipment supplier and pushed out the company’s chief executive officer.
The stock fell as much as 6 percent in early trading in New York Monday to as low as $28.35, valuing Xerox at about $7.2 billion.
Jeff Jacobson, the CEO who oversaw the initial deal with Fujifilm, will step down under a settlement backed by the two shareholders, Xerox said in a statement Sunday. Keith Cozza, the CEO of Icahn Enterprises, will become chairman, while John Visentin is expected to take over as CEO, the U.S. copier company said. Icahn and Deason own a combined 13 percent of Xerox.
The agreement leaves the two activist investors with a firmer handle on the company after a tumultuous boardroom battle. Icahn and Deason, who opposed the transaction from the start as undervalued, must now find other bids or compel Fujifilm, which owns 75 percent of an office equipment joint venture with Xerox, to raise its offer substantially.
It also marks another big win for billionaire investor Icahn, who’s refocused his energy on shaking up corporate targets in the past few months after spending part of last year advising U.S. President Donald Trump on his regulatory agenda. Icahn announced two more nominees for SandRidge Energy Inc.’s board on Friday, signaling he’s not interested in a proposed settlement of his fight to take control of the oil and gas explorer. He also reached a deal with Newell Brands Inc. that would give him seats on the board and see the Crock-Pot maker accelerate its transformation plans.
“We are extremely pleased that Xerox finally terminated the ill-advised scheme to cede control of the company to Fujifilm,” Icahn said. “With that behind us and new shareholder-focused leadership in place, today marks a new beginning for Xerox.”
Xerox is unlikely to find an alternative acquirer for itself in the next few months, JPMorgan Chase & Co. analysts Paul Coster wrote in a note to clients Monday. Coster, who cut his recommendation on Xerox shares to neutral from buy, said Xerox could lose key enterprise clients and that the “abrupt” change could disrupt operations.
Deason sued Xerox in February to block the proposal, accusing Jacobson of acting without authorization to strike a deal that preserved his job at shareholders’ expense. The lawsuit also claimed that the company’s board breached its fiduciary duties.
As part of a deal proposed in January, Xerox was to have first merged with a joint venture it operates with Fujifilm in Asia, and then the Tokyo-based company would take over slightly more than 50 percent of the combined entity.
Fujifilm on Monday said it “disputes Xerox’s unilateral decision” and is “reviewing all of our available options, including bringing a legal action seeking damages.” The company also said it will urge Xerox’s board to reconsider the settlement with Icahn and Deason. As part of the agreement with the activist investors, Xerox pushed out five board members and added five new ones, including Cozza and Visentin, according to the statement Sunday.
Last week, Icahn and Deason repeated their calls for Xerox to scrap the transaction, fire Jacobson, hire a new CEO, and have the board resign. The pair said they would be willing to consider any offers for the company of $40 a share or more.
Fujifilm shares gained 1.6 percent as of the close in Tokyo trading on Monday, giving the company a market value of $20 billion.
“It’s not bad for Fujifilm that Xerox ended the deal,” Tomoichiro Kubota, a market analyst at Matsui Securities Co. said by phone. “From the beginning, the market was not accepting the deal as a good one since they don’t see big growth potential in Xerox.”
The Japanese company’s shares are down 6.5 percent this year, partly as investors balked at the company’s plan to take on more of Xerox’s business within the office-equipment industry. The company has been acquiring drug and biomedical assets to diversify as demand for copiers stagnates.
Separately, Fujifilm said it’s acquiring the stakes it doesn’t already own in drugmaker and distributor Toyama Chemical Co. from Taisho Pharmaceutical. Toyama Chemical will be combined with its Fujifilm RI Pharma unit effective Oct. 1, Fujifilm said in a statement Monday. Nikkei earlier reported Fujifilm was expected to acquire the stake for as much as 70 billion yen ($640 million).
In its statement late Sunday, Xerox cited Fujifilm’s failure to provide audited financials for the joint venture on time, among other issues, for the decision to terminate the merger agreement. Bloomberg earlier reported on the cancellation of the transaction.
Fujifilm said last week it intended to resume discussions with Xerox on a potential combination on “superior terms,” but it hadn’t received a new proposal from the U.S. company. Fujifilm has also said it was appealing a U.S. court injunction blocking the takeover.
Xerox said it believes that the transaction cannot reasonably be expected to be completed under the circumstances, particularly given the court injunction and that shareholders didn’t support it on current terms, as well as unresolved accounting issues at Fuji Xerox.
“The board also considered the potential instability and business disruption during a proxy contest. Absent a viable, timely transaction with Fujifilm, the Xerox board believes it is in the best interests of the company and all of its shareholders to terminate the proposed transaction and enter a new settlement agreement with Icahn and Deason,” it said.
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