New Xerox CEO Calls Fujifilm Moves to Renew Talks ‘Delusional’
(Bloomberg) -- Xerox Corp.’s Chief Executive Officer John Visentin blasted his Fujifilm Holdings Corp. counterpart’s efforts to revive merger talks and warned he doesn’t plan to renew the companies’ Asia joint venture in 2021.
Visentin, elevated to CEO after shareholders Carl Icahn and Darwin Deason won a court order blocking the companies’ $6.1 billion merger deal, said in a letter to Fujifilm chairman Shigetaka Komori on Monday that a lawsuit by Fujifilm was “nothing more than a desperate, misguided negotiating ploy to save a takeover” that has already been blocked by a judge because of the “surreptitious actions of your team.” Visentin said Fujifilm’s own accounting problems had made its deal with Xerox impossible to complete.
“You know it, and I know it,” Visentin said. “Your expectation -- as expressed to the Japanese media -- that Xerox will come to Fujifilm with a new proposal for a combination transaction is simply delusional. It will not happen.”
Fujifilm responded in a statement, accusing Xerox of breaching the merger agreement by ending the deal without a legitimate reason. It dismissed Visentin’s claim that Fujifilm’s accounting problems sunk the deal as “wrong.”
Fujifilm shares fell as much as 2 percent in early trading in Tokyo on Tuesday. Xerox dropped 3.6 percent in New York on Monday, the biggest decline in six weeks.
Visentin’s letter echoes arguments made by billionaires Icahn and Deason in their fight against the agreement in which Norwalk, Connecticut-based Xerox would have been acquired through a joint venture that would be controlled by Fujifilm. In court, Deason had argued that former Xerox CEO Jeffery Jacobson acted without authorization to strike the deal to preserve his own job at the expense of shareholder value.
Jacobson -- and Xerox in the course of the state court lawsuit -- have denied the allegations.
Xerox walked away from the Fujifilm deal in May as part of its settlement with Deason, handing the reins to Visentin and launching a new effort to make the most of the company’s brand as the office equipment business moves further beyond the copy machine era.
In his letter, Visentin, who was a consultant to Icahn in the feud before becoming CEO, makes it clear that Xerox is moving to sever its ties to Fujifilm. That includes not renewing the joint venture, Fuji Xerox Co., that they have operated for the past 50 years. Such a move could trigger “ruinous consequences” for Fuji Xerox, which accounts for almost half of Fuji’s total revenue and for whom Xerox is its largest customer, according to the letter.
Fujifilm, based in Minato-Ku, Japan, sued Xerox last week in Manhattan federal court, accusing it of breaking the merger contract and seeking more than $1 billion in damages plus a finding that it’s entitled to a $183 million termination fee. It blamed the transaction’s demise on Icahn and Deason, “who, notwithstanding their minority ownership of Xerox shares, have yanked the Xerox board in more directions than can be counted.” The two held a combined stake of almost 13 percent as of May, according to data compiled by Bloomberg.
Three days later, the New York state court judge who blocked the merger in April rejected Fujifilm’s request to dissolve his order, cutting off a possible option for keeping the deal alive. Still, the litigation could encumber Xerox’s prospects for striking a deal with another potential buyer or partner.
In his letter, Visentin cites Fujifilm’s accounting problems as the cause for terminating the January merger agreement.
“The mismanagement and resulting accounting fraud have weighed heavily on our dealings and have cost us both a significant amount of time and money,” Visentin wrote.
In 2017, Fuji Xerox disclosed accounting issues at its New Zealand offices, which were later revealed to have also involved its Australia office. The company said it had overstated its revenue over six years, leading to several Fuji Xerox executives stepping down or taking pay cuts as a result of a probe into the irregularities.
Visentin said Xerox plans to begin buying from suppliers other than the Fuji Xerox joint venture with an eye toward selling directly to customers in the Asia-Pacific market. He warned Komori that “no court would allow Fuji Xerox to take adverse, punitive actions toward Xerox’s supply chain as we begin sourcing away from Fuji Xerox, which we are clearly permitted to do.”
In its emailed statement, Fujifilm said it wasn’t surprised by anything in Visentin’s letter. It said the accounting issue at Fuji Xerox was resolved with an audit of all operating companies in its territory. It said it was confident its assertion that Xerox breached the merger agreement would be validated in court.
Fujifilm shrugged off Xerox’s plans to bypass their joint venture.
“It is again no surprise to hear Xerox’s pretense to sell its products directly into the growing Asia-Pacific market,” according to the statement. “We believe that it would be extremely difficult for Xerox -- which does not currently possess any marketing channel in Asia -- to build its own channel from scratch.”
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