Xerox sued by third-largest shareholder Deason for alleged fraud related to takeover by Fuji

Xerox sued by third-largest shareholder Deason for alleged fraud related to takeover by Fuji

February 13, 2018 09:57 AM

(CNBC) -- The Xerox deal to combine with Fujifilm will take another blow Tuesday when its third-largest shareholder, Darwin Deason, sues Xerox and Fuji in New York court for fraud, seeking to enjoin the companies from completing their deal and to nullify the joint venture between the two.

The complaint, brought by Deason's lawyers at King and Spalding, alleges that the Fuji-Xerox joint venture contains a "crown jewel lock-up right that allows Fuji to control Xerox's intellectual property and manufacturing rights in the $36 billion Asia-Pacific market in the event Xerox were to sell to another suitor."

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Deason claims that this lock-up was concealed from him and other shareholders for 17 years until the recent transaction with Fuji was consummated.

As well, Deason claims that an accounting scandal at the Fuji-Xerox joint venture and an independent report of that scandal in July of 2017, which criticized Fuji for its prominent role in contributing to the accounting scandal, gave Xerox the right to terminate the joint venture agreements.

The suit states:

"The self-interested director defendants, however, ignored the opportunity or deliberately chose not to terminate the joint venture agreements. Had the director defendants terminated the joint venture agreements, they would have been able to engage in a fair and equitable bidding process and achieve a fair value and control premium for Xerox shareholders. Indeed, the value of Xerox as a standalone company with no encumbrances on its intellectual property and the licensing, manufacturing and selling of its products in the Asia and Pacific Rim markets is significantly greater than the value being provided to the company and its shareholders as part of the proposed transaction."

Japan's Fujifilm announced at the end of January it will buy Xerox for $6.1 billion and combine it into its existing joint venture. Deason and another Xerox shareholder, Carl Icahn, have been vocal about criticizing the combination.

Icahn and Deason said in an open letter this week the deal "dramatically undervalues Xerox and disproportionately favors Fuji."

"We urge you our fellow shareholders do not let Fuji steal this company from us," Deason and Icahn wrote.


David Faber (CNBC)

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