By David Benoit
Xerox Corp.'s board told Chief Executive Jeff Jacobson in
November to stop negotiations with Fujifilm Holdings Corp. because
it was considering firing him, a newly amended lawsuit alleges.
Instead, the suit says, the executive raced to strike a complex
deal that would leave him in charge, and cede control of the
American icon to the Japanese company, a move that has been
criticized by two of Xerox's biggest investors.
Though Xerox's board ultimately stuck with Mr. Jacobson after
his performance improved and signed off on the deal he negotiated,
communications disclosed Sunday in a lawsuit filed by billionaire
investor Darwin Deason allege the CEO negotiated to sell the
company -- and keep his own job -- while pushing the acquirer to
help him avoid being ousted under pressure by Carl Icahn, his
biggest investor.
Xerox's chairman, Robert Keegan said Sunday Mr. Jacobson was
"fully authorized to engage in discussions with Fujifilm."
The day after Mr. Jacobson was told he might be fired, a
Fujifilm executive attempted to keep the talks on track, according
to text messages included in the suit.
"If you cancel/postpone your trip to Japan due to your board's
direction, [Fujifilm's CEO] would be very disappointed and may lose
the momentum of the deal," Fujifilm's head of strategy, Takashi
Kawamura, warned Mr. Jacobson. "We should be the one team to fight
against our mutual enemy," a reference to Mr. Icahn, according to
the lawsuit. "We are aligned my friend," Mr. Jacobson replied.
Mr. Jacobson also pushed Fujifilm executives to clearly tell Mr.
Keegan that Fujifilm wanted Mr. Jacobson to be CEO and wouldn't do
the deal without him, messages in the court documents show. Mr.
Keegan was aware Mr. Jacobson had continued the negotiations, the
suit alleges.
Mr. Keegan said in his statement Mr. Deason was "distorting"
facts. Fujifilm wasn't immediately available to comment given the
hour in Tokyo.
In January, Xerox announced a complicated merger that would cede
control to Fujifilm if completed. The deal would trade Xerox's 25%
ownership of their 60-year joint venture to Fujifilm for 49.9% of a
new company that combines all of Xerox with the joint venture.
Xerox shareholders would also be paid $2.5 billion in a special
dividend.
The messages illustrate a highly unusual set of circumstances
for negotiating a deal, a process corporate lawyers say typically
needs to be free of even the perception of conflicts of interest.
And the extraordinary disclosures are likely to add fuel to the
investors' fight to overthrow the Xerox board and potentially kill
the transaction.
The civil lawsuit, filed in New York last month and amended
Sunday by Mr. Deason, Xerox's third-biggest shareholder, alleges
Mr. Jacobson was seeking to protect his own job over interests of
Xerox investors. Mr. Deason, in a statement, said heavy redactions
in the suit continue to hide more important information. He has
joined with Mr. Icahn to oppose the deal. Together they control
about 15% of Xerox.
Xerox says the deal was done at a premium for the value of its
assets, which it says would have only been worth up to 46% of the
combined company. Mr. Jacobson has said it would allow the company
to focus on innovation and find new markets for printing
technology.
Upset with the deal, the two billionaires are seeking to shake
up the board and have teamed with John Visentin, a technology
executive who was the candidate Xerox had "zeroed in on" to replace
Mr. Jacobson in November, according to people familiar with the
matter.
Mr. Icahn has already nominated four directors, and Mr. Deason
is suing for the ability to run a campaign to unseat the rest of
the board. The board vote is likely before a shareholder vote on
the Fujifilm deal, giving the investors a window to potentially
recut the deal or propose an alternative if their directors
win.
Mr. Jacobson was named as the replacement for longtime leader
Ursula Burns in the middle 2016 when the company was splitting off
its business-services division. Mr. Icahn had invested to urge
changes and his employee, Jonathan Christodoro, took a seat on the
board that year.
In early 2017, on-and-off again talks with Fujifilm heated up,
Xerox disclosed in a filing last week. The board, the lawsuit
further alleged, told Mr. Jacobson it was only interested in an
all-cash deal to sell Xerox at a premium.
That spring, an accounting scandal at Fuji Xerox rocked the
joint venture, and Fujifilm told Xerox it needed to sort out the
trouble before it could engage on any potential deal, Xerox
disclosed last week.
After Mr. Icahn warned Mr. Jacobson he had to sell the company
or risk being ousted, Mr. Jacobson began pushing Fujifilm for a
deal, the suit alleges. He warned Fujifilm of his trouble with Mr.
Icahn and suggested the parameters of the ultimate transaction to
Fujifilm executives, which he told his chairman was a "Hail Mary"
chance, according to a message in the lawsuit.
Meanwhile, the board grew concerned Mr. Jacobson wouldn't hit
planned financial targets and launched a CEO search, Xerox
disclosed in a proxy filing last week.
On Nov. 10, Mr. Keegan, the chairman, told Mr. Jacobson the
board was "disappointed by his performance," and that he was to
"discontinue any and all" communications with Fuji, the lawsuit
said. At that point, according to communications cited in the suit,
the board had identified a candidate whose name is redacted. The
candidate was Mr. Visentin, people familiar with the matter
said.
Shortly afterward, Mr. Jacobson went on an already scheduled
trip to Japan and continued to talk about the deal, which Mr.
Keegan knew, the suit alleges. That month, Mr. Jacobson pushed
Fujifilm to move with urgency and warned that any signs Fujifilm
lacked seriousness would raise concerns with Mr. Icahn, the suit
says. Mr. Jacobson also told his own bankers that Fujifilm says
"there is no deal without me," according to a text message in the
suit.
Fujifilm delivered an offer Nov. 30.
Days later, the board decided to stick with Mr. Jacobson as CEO,
noting the financial targets and guidance seemed likely to be met,
Xerox disclosed.
Mr. Jacobson texted a Fujifilm executive, saying, "we will
finish our mission and win!" The executive replied: "We are
supporting you Jeff!" according to the lawsuit.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
April 15, 2018 19:08 ET (23:08 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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