(Bloomberg) -- A plan to replace the chief executive officer of Xerox Corp. and several directors fell apart over a technicality, setting the stage for a proxy fight in which activist shareholders will seek to improve the terms of a deal to cede control of the iconic U.S. printer company to Japan’s Fujifilm Holdings Corp., or scrap it entirely.
In a surprising turn of events Thursday night, Xerox CEO Jeff Jacobson and six other board members will now stay on, after a settlement to oust them, reached earlier in the week with Carl Icahn and Darwin Deason, expired. Xerox had said Tuesday that the agreement was contingent on Deason ending his lawsuit against the company. Thursday night Xerox said “in the absence of such stipulations, the agreement expired.”
Xerox and the two investors, who control more than 13 percent of the company, are battling over a proposed $6.1 billion deal that would hand control of the embattled, former U.S. office giant to Fujifilm. Xerox shares gained 0.3 percent Friday. Fujifilm fell 5.5 percent in Tokyo on Wednesday, before national holidays began.
Icahn and Deason have opposed the transaction from the start. Deason sued Xerox in February to block the proposal, accusing Jacobson of acting without authorization to strike a deal with Fujifilm that preserved his job at the expense of shareholder value. He also claimed the company’s board breached its fiduciary duties.
A judge temporarily blocked the deal last week, before an agreement Tuesday between the company and the investors that would have seen Jacobson and six board members step down. Now this: After Xerox said Jacobson and his team will stay on, the company later also said it’s appealing the court decision that blocked it in the first place.
“Now it’s just more uncertainty.,” said Bloomberg Intelligence analyst Simon Chan in Hong Kong. “We don’t know if the deal is back on. There’s something happening behind the scenes, which does not raise confidence in the deal or the company.”
Jacobson’s initial planned resignation was seen as a major victory for the activist shareholders. Xerox had said the new board would look at alternatives, including terminating or restructuring the pact with Fujifilm.
“The Xerox board recklessly refused to follow through with the leadership and governance changes we agreed to, demanding unprecedented additional approvals for their own personal self-interest,” Icahn and Deason wrote in an open letter to shareholders after news that Jacobson would stay on. “We will continue our fight to rescue and revitalize Xerox.”
Deason and Icahn plan to push ahead with their proxy fight at the company, according to a person familiar with the matter. The two men plan to propose a slate of 10 new members to Xerox’s board as soon as possible and leave it up to shareholders to decide who should control the company, likely at a meeting in June, the person said, asking not to be identified discussing private matters.
The two investors are also considering possible legal action against Xerox and Fujifilm, the person said.
Fujifilm and Xerox could continue to renegotiate the whole deal, but the only situation that’s palatable for Deason and Icahn would be one where the Japanese company buys the entire Xerox Corp. for a premium, the person familiar said. Some valuations have pegged Xerox at more than $40 a share, the person said.
Fujifilm reiterated its call for the Xerox board to fulfill the deal agreement. The Japanese company is satisfied the U.S. court has “accepted our view of the importance of an open, orderly and transparent review process before any final decisions are made,” Fujifilm spokeswoman Mizuki Itou said in an emailed statement on Friday.
Under the terms of the takeover announced in January, Xerox, which has a market value of $7.3 billion, would first merge with a joint venture that the company operates with Fujifilm in Asia. Tokyo-based Fujifilm would ultimately end up owning 50.1 percent of the combined entity, which would expand the joint venture to encompass all of Xerox’s operations. Xerox holders would receive a cash dividend of $9.80 a share under the proposed transaction.
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