Icahn, Deason Say Xerox-Fujifilm Merger Makes Shareholders 'Virtually Powerless'

Xerox Corp XRX's plans to merge with Japan's Fujifilm Holdings is being questioned by two of Xerox's biggest shareholders, Carl Icahn and Darwin Deason.

What You Need To Know

Icahn, Xerox's biggest shareholder, and Deason, the company's third biggest shareholder, published an open letter to investors that questions the logic behind Fujifilm's $6.1 billion acquisition of Xerox. As part of the merger agreement, Fujifilm would acquire the American company and merge it with its already existing joint venture, Fuji Xerox.

The structure of the deal " dramatically undervalues Xerox and disproportionately favors Fuji." In fact, Fujifilm CEO and Chairman Shigetaka Komori boasted in an interview that the structure of the deal implies it can "take control of Xerox without spending a penny," the letter said.

The deal also implies shareholders will receive an indirect 25 percent stake in a Fuji subsidiary, which just last year was involved in an accounting scandal, the letter said. Shareholders will also receive a one-time special dividend which in essence is "financed with our own assets."

Why It's Important

"If this deal is consummated we will no longer be Xerox shareholders," according to the letter. " Rather, we will be passive minority owners of a Fuji subsidiary – virtually powerless with respect to the future direction of our investment, with no opportunity to ever receive a true control premium for our shares."

Xerox's stock was trading around $29.76 Monday morning, up about 15 cents at time of publication.

What's Next?

Xerox's board of directors has taken "the path of least resistance" in accepting an acquisition offer rather than "pursue something challenging that could yield tremendous returns," the letter said.

The letter urges shareholders not to accept a deal which doesn't create enormous value. Rather, the company needs to be removed from the "shackles of the Fuji Xerox joint venture and bringing in leadership with the vision and operational expertise to revive the company."

A Xerox spokesperson told Benzinga in an emailed statement its merger decision is the result of "many months" of a comprehensive review by the independent members of the board of directors. The decision is also based on the advice of financial and legal advisers who considered multiple options but concluded the deal with Fujifilm is "the best path to create value" for Xerox shareholders.

"The transaction provides shareholders with the opportunity to benefit from ownership in a combined company that has enhanced growth prospects and a stronger financial profile to support future value creation, as well as an immediate substantial dividend payment," the statement said.

Related Links:

Xerox Hasn't Discussed Fuji Deal With Carl Icahn, Darwin Deason

Analyst: Buy Xerox — Whether Fuji Deal Closes Or Not

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