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Fujifilm Sues Xerox for $1 Billion After Merger’s Collapse

Fujifilm is blaming the collapse of its merger with print and copy giant Xerox on the whims of activist investors Darwin Deason and Carl Icahn and has asked a court to award it more than $1 billion in damages.

MANHATTAN (CN) - Fujifilm is blaming the collapse of its merger with print and copy giant Xerox on the whims of activist investors Darwin Deason and Carl Icahn and has asked a court to award it more than $1 billion in damages.

Last month, Xerox announced that it had pulled out of a proposed $6.1 billion merger with Fujifilm. Deason and Icahn were resolutely opposed to the deal, claiming it was bad for shareholders and undervalued the company.

The company said at the time that it had decided to abandon the transaction in the interests of its shareholders and because Fujifilm had dragged its feet on reopening negotiations.

Under the terms of the transaction reached while ousted Xerox CEO Jeff Jacobson was still at the helm, Fujifilm agreed to transfer its 75 percent stake to Xerox so that the new entity Fuji Xerox would become an indirect subsidiary of the print and copy company. Fujifilm would have owned just over half of the combined business under an existing joint venture, while shareholders would have received a one-time special cash dividend of about $9.80 a share.

In a complaint filed Monday in Manhattan federal court, Fujifilm says there is “no question” that the deal would have maximized value for shareholders.

The Japanese firm, represented by lead attorney Andrew Stern with Sidley Austin, wants $1 billion in damages in addition to an unspecified amount of punitive damages for Xerox’s allegedly “egregious conduct” and “willful breaches of the transaction agreements.”

On top of that, the company wants a judge to order Xerox to pay a $183 million termination fee.

Fujifilm says Xerox’s “change of heart” came only after Icahn and Deason, who are not parties to the lawsuit, pressured the company to abandon the deal. It claims the pair, who own 15 percent of Xerox shares between them, “have yanked the Xerox board in more directions than can be counted.”

“This includes a game of musical chairs in the Xerox boardroom, which announced several changes to its composition in just the first two weeks of May 2018. At present, however, undoubtedly due to Icahn’s and Deason’s influence, the Xerox board has decided to attempt to back out of the transaction, abandoning the deal its directors unanimously approved in January because they believed it would maximize value for Xerox shareholders,” the 36-page lawsuit states.

Fujifilm says that although the deal would have benefited shareholders, it was “cognizant of the presence of well-known activist investor Carl Icahn and his penchant for seeking the ever-better deal,” and made sure that it reserved the right to sue for damages if Xerox willfully breached the agreement.

“Xerox has now done so several times over, thanks in no small part to Icahn and Deason’s machinations,” the complaint states.

Under fire for his role in the merger, Jacobson resigned in early May after New York County Supreme Court Judge Barry Ostrager blocked the transaction with Fujifilm a month earlier, ruling that Jacobson was “massively” and “hopelessly” conflicted.

John Visentin was installed as new vice chairman and CEO of the company shortly after Jacobson’s departure and the settlement of Deason’s legal claims against Xerox.

The settlement led to the departure of seven directors and the appointment of new executives to replace them.  At least five of the proposed replacements have “significant connections to Icahn or Deason,” according to Fujifilm’s complaint.

Fujifilm said in a statement Tuesday that it had appealed the New York Supreme Court's preliminary injunction.

“Fujifilm is confident that the court will agree that all Xerox shareholders ought to decide for themselves the operational, financial, and strategic merits of the transaction.  It is inconsistent with shareholder democracy to allow Carl Icahn and Darwin Deason, minority shareholders with only 15 percent of Xerox’s shares, to dictate the fate of Xerox," the company said.

Xerox said it was "extremely confident" that it had a right to pull out of the deal, citing "unresolved accounting issues at Fuji Xerox."

"Xerox will vigorously defend its decision and pursue any and all remedies available to Xerox arising from Fujifilm’s mismanagement and misconduct," spokesman Carl Langsenkamp wrote in an email.

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