May 2, 2018

M&A Activism: Xerox & Fuji’s Wild Ride

Last Friday, a New York judge issued a preliminary injunction prohibiting Xerox from taking further steps to complete its pending deal with Fujifilm.  The judge’s 25-page opinion  is worth reading – it recounts one of the more remarkable factual backgrounds for an M&A case that I’ve ever seen.

There’s so much going on in this case that I don’t know where to start.  So, I’ll just rely on this excerpt from a recent “FT Alphaville” blog summarizing the court’s ruling:

In an extraordinary ruling late Friday, New York state judge Barry Ostrager enjoined Xerox from pursuing a shareholder vote on the deal, a relatively rare move that demonstrated how tainted he found the deal process (based on evidence from discovery and a hearing last week). Longtime Xerox shareholder Darwin Deason, along with a class of other shareholders, alleged that the Xerox CEO Jeff Jacobson engineered a dishonest transaction in order to save his job. They also claim the circumstances of the transaction saved Fuji, his alleged co-conspirator, from the need to deal with Xerox’s largest shareholder, Carl Icahn. (Deason was also allowed by the judge to pursue a proxy fight at Xerox.)

Ostrager said the circumstances of the transaction precluded the court from deferring to independent directors’ judgement. This is because the deal — which was ultimately approved by the board — transferred control of Xerox to Fujifilm without any payment to shareholders, named Jacobson as CEO of the combined entity, and gave Jacobson/Xerox say over the makeup of the combined entity’s board.

Xerox & Fuji both have said they disagree with the ruling & plan to appeal.  Xerox is a New York corporation – and this recent column from Alison Frankel asks if Delaware would’ve issued an injunction under these circumstances.  Despite the alleged sketchiness of the process, this excerpt says there’s some reason for doubt:

In 2014’s C&J Energy Services v. City of Miami Employees’ Retirement Trust, the Delaware Supreme Court reversed an injunction against C&J’s merger with Nabors Industries. The state justices essentially said that when independent boards exercise their business judgment to approve strategic mergers – and give shareholders a right to vote on the deals – Chancery Court should not stand in the way, particularly if there’s no competing bid for the company.

It will be interesting to see how this case – and this deal – play out.  But holy cow, what an opening act!

John Jenkins