Judge temporarily blocks the Xerox-Fujifilm agreement



Xerox
Corp.


XRX 2.83%

I try to sell a majority of itself to

Fujifilm Holdings
Corp.


FUJIY 0.60%

was temporarily blocked on Friday night by a judge who said the transaction was negotiated by a "massively conflicted" chief executive who was seeking his own interests over Shareholders of Xerox & # 39;

In an opinion after two days of hearings for a lawsuit brought by one of Xerox's largest investors, the judge criticized the Xerox CEO

Jeff Jacobson

and the company's board of directors to approve the agreement, describing its arguments as "counterintuitive and not credible." He accepted the motions for a preliminary injunction against the agreement, a rarity for mergers and acquisitions.

Multimillionaire Investors of Xerox

Carl Icahn

Y

Darwin Deason

They joined to fight against the agreement, which was announced in January, with Mr. Deason who filed the lawsuit to block it.

Last year, the Xerox board had been considering replacing Mr. Jacobson, partly under pressure from Mr. Icahn, and told the CEO to stop negotiating the deal in November, according to the documents in the lawsuit. that were reported for the first time by The Wall Street Journal. Mr. Jacobson, with the blessing of his president, instead ran to reach a complex agreement that would leave him in charge and ceded control of the American icon to the Japanese company, according to the lawsuit.

"This transaction was largely negotiated by a massively conflicted CEO in breach of his fiduciary duties to promote his own interest and approved by a board, more than half of which were being perpetuated in office for five years without adequately supervise the CEO in the Xerox conflict, "Judge

Barry R. Ostrager

of the New York Supreme Court in Manhattan.

The opinion prevents the agreement from moving forward until the court makes a final determination on the allegations.

"We do not agree with the judge's decision and we are disappointed," Fujifilm said, adding that he was considering all options, including an appeal.

"We firmly believe that all Xerox shareholders should be able to decide for themselves the operation, the financial and strategic merits of the transaction," the Japanese company said in a statement.

Xerox was not available for immediate comment on Friday.

Mr. Deason was also looking to reopen the Xerox window to allow him to nominate a full list of directors, joining Mr. Icahn's plan to nominate four for the board. The judge gave Mr. Deason on Friday 30 days to propose his list of directors.

Xerox and Fujifilm had said that Mr. Deason was manipulating facts in the lawsuit. Xerox said that Jacobson was not a dishonest executive and that the board had finally determined that he was the best executive for the job and that the agreement was the best option on the table.

Fujifilm denied knowing that the Xerox board was considering replacing Mr. Jacobson.

The judge's opinion cast doubt on these explanations, saying that they were not credible and that the president should not have allowed the talks to continue under Mr. Jacobson.

The temporary suspension of the deal comes after a Fujifilm spokeswoman said on Friday that she planned to revise the terms of the agreement at the request of Xerox. Currently, the two companies have a joint venture in Asia, of which Fujifilm owns 75% and Xerox owns 25%. Under the agreement, that joint venture would be integrated into Xerox, based in the US. UU., And Fujifilm would own 50.1% of the new Xerox. Current Xerox shareholders would also be paid a special dividend of $ 2,500 million.

Xerox and Fujifilm have said that the agreement valued Xerox and that the combination of both companies would allow the new company to focus on innovation and new services beyond printers and copiers.

The judge also gave credit to Mr. Deason's allegations that the agreement did not give Xerox shareholders a premium, saying that "the purported value proposition of the transaction was based largely on the value of the the synergies and the valuation of Fuji Xerox, both of which are highly subjective. "

Mr. Deason, represented by the King & Spalding LLP law firm, was not immediately available for comment. Mr. Icahn was not immediately available either.

The agreement would require a vote by Xerox shareholders, which is likely to be presented after a vote in the Xerox board this summer.

Mayumi Negishi

contributed to this article.

Write to David Benoit at david.benoit@wsj.com

.


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