NEW YORK (CN) – A New York judge put the brakes on Fujifilm’s $6.1 billion bid to merge with print company Xerox based on evidence that embattled Xerox executive Jeff Jacobson was “hopelessly conflicted” and pushed for the deal to save his job as CEO.
In February, Xerox’s third-largest shareholder Darwin Deason filed a complaint in New York County Supreme Court asking a judge for an injunction to halt the transaction, arguing it is unfair to shareholders. Top Xerox shareholder Carl Icahn joined Deason in criticizing the deal. Between them, the two men own a 15 percent share of the U.S. print firm.
On Friday, Judge Barry Ostrager ruled that the shareholders had presented enough evidence that the Xerox board had breached their fiduciary duty as directors and that Fujifilm, also known simply as Fuji, aided and abetted them. He issued a preliminary injunction that, at least for now, halts the transaction.
Judge Ostrager said that a two-day evidentiary hearing in New York last week established that Xerox CEO Jacobson was “hopelessly conflicted” and wanted to ensure that the transaction went through so he could retain his position as CEO, even after he was advised to bring an end to negotiations.
Fuji knew it could take control of the print company for a bargain price if it allowed Jacobson to keep his job, according to the ruling.
“This transaction was largely negotiated by a massively conflicted CEO in breach of his fiduciary duties to further his self-interest and approved by a board, more than half of whom were perpetuating themselves in office for five years without properly supervising Xerox’s conflicted CEO,” Ostrager wrote in the 26-page opinion.
Ostrager said a court injunction would allow Deason and other Xerox shareholders to nominate a slate of competing directors to oversee the transition.
Xerox said it would appeal Ostrager’s decision, adding that the transaction is in the best interest of the company and shareholders.
“The company strongly believes that its shareholders should be allowed to exercise their right to vote on the transaction and decide for themselves,” the company said in a prepared statement. “The Xerox board undertook a rigorous process to reach its decision to approve the proposed transaction, including a comprehensive review of the company’s strategic and financial alternatives, as well as potential transaction structures in its negotiations with Fujifilm over a ten-month period.”
Deason lauded his attorneys in a statement and said he was “grateful the court acted to protect the shareholders of Xerox.”
Fujifilm said that it was disappointed by the court’s ruling and was considering an appeal.
“We believe the record shows that Fujifilm negotiated with Xerox at arm’s length to create a transaction combining Xerox and Fuji Xerox that is the only option to provide shareholders of both companies with exceptional short-and long-term value,” the company said in an emailed statement.
Ichan and Deason came out strongly against the merger earlier this year.
“To put it simply, the current board of directors has overseen the systematic destruction of Xerox, and, unless we do something, this latest Fuji scheme will be the company’s final death knell. We urge you – our fellow shareholders – do not let Fuji steal this company from us. There is still tremendous opportunity for us to realize value on our own if we bring in the right leadership,” the shareholders said in a joint statement.
On Jan. 31, Xerox announced that shareholders would receive a $2.5 billion special cash dividend or close to $9.80 per share if the deal closes, with Fuji taking a majority 50.1 percent stake in the joint venture.
If the merger is ultimately allowed, the new company will have headquarters in Norwalk, Conn., and Tokyo’s Minato Ward while maintaining both companies’ brands.