Xerox’s Transaction Deal With Fujifilm Terminated

A deal worth $6.1 billion between Fujifilm Holdings and Xerox has been scrapped after the latter reached a settlement with two activist investors, Darwin Deason and Carl Icahn. The settlement will also see Xerox being placed under new management.

For Fujifilm this is a setback with regards to new negotiations with the U.S. photocopier giant. However Fujifilm remains in contention but will likely have to pay more for Xerox. In a statement Xerox revealed that it had asked for talks with Fujifilm for several weeks with a view to improving the terms of a proposed transaction. However the Japanese firm failed to give any assurances within a given timeframe. This is what led to Xerox dropping the deal.

Complex deal

Earlier in the year the two firms had agreed to a complex arrangement which would have seen Xerox merge with Fuji Xerox, a joint venture of the two firms, giving Fujifilm control. Consequently Deason and Icahn, who own 15% of Xerox launched a proxy fight arguing that the U.S. company was being undervalued. Additionally Deason and Icahn have indicated that they oppose the joint venture’s current structure. This has resulted in uncertainty as the business might face potential changes and this could be disruptive to Fujifilm as the joint venture generates close to 50% of its revenues.

According to Deason and Icahn there are a lot of investors who are interested in Xerox. Sources have also said that Apollo Global Management, a buyout firm, is interested in bidding for the U.S. photocopier. Per analysts Fujifilm and Xerox are inextricably intertwined meaning that the former still possesses a lot of bargaining power.

Negotiation tactics

“It wouldn’t be good if it goes elsewhere. But are there really other potential buyers? Icahn and Deason say there are, because they want a higher price, but you don’t really know whether that’s for real,” Ichiyoshi Asset Management’s Mitsushige Akino said.

Fujifilm has a 75% stake in Fuji Xerox and is in charge of handling contracts which supply clients spread across the globe. In Asia the joint venture provides Fuji Xerox services while in Europe and the United States the joint venture offers Xerox services. Xerox also no longer in the business of building its own copiers and instead relies on Fuji Xerox.

Under the settlement the chief executive officer of Xerox, Jeff Jacobson, will step down. Jacobson was the deal’s chief architect. Additionally five other directors of Xerox are expected to step down.

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