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Sarah Taddeo, of the Rochester Democrat and Chronicle, summed up the recent state of Xerox’s shareholder relations in her statement, “Xerox and its leaders have been locked in an all-out war with two of the company’s top shareholders.” This internal war between Xerox and its shareholders is a result of the proposed merger between Xerox and the Japanese company Fujifilm.
Carl Icahn and Darwin Deason’s combined shares make up 15 percent of Xerox’s total shares. They believe that the result of the merger would not be beneficial to Xerox shareholders, and have taken action to remove the former CEO of Xerox, Jeff Jacobson, on the grounds that he “fashioned the agreement in an attempt to save his job,” as noted by Sarah Taddeo.
Xerox’s technology executive, Giovanni “John” Visentin, replaced Jacobson in May after his resignation, along with several other resignations from Xerox board members. Vesentin and the new board have since terminated the proposed merger with Fujifilm.
The termination of the merger came from the grounds that Fujifilm had failed to provide satisfactory audited financials on the joint venture between the two companies (Fuji Xerox) on time. Xerox’s termination of the proposed merger has triggered Fujifilm to file a lawsuit against Xerox claiming that “Xerox had no right to renege on the Fuji merger.”
In the lawsuit, Fujifilm states that the true reason for the termination of the merger is that “the Xerox Board changed its mind — as induced by Deason and Icahn.” Xerox has since reiterated that their reason for terminating the agreement was due to “unresolved accounting issues,” as noted by Xerox spokesman Carl Langsenkamp.
Xerox CEO John Visentin has now responded to the lawsuit filed by Fujifilm in a letter to Fujifilm’s Chairman Shigetaka Komori on June 25. Visentin’s letter highlights Xerox’s reason for terminating the merger stating that, “Fujifilm should realize that the internal accounting issues at Fuji Xerox were a result of their mismanagement, which made it impossible to close the announced transaction.” He continued that Xerox will not let Fujifilm further damage their iconic brand.
A further section of Visentin’s letter to Chairmin Komori reads, “As you very well know, Xerox legally and justifiably terminated the Share Subscription Agreement in accordance with that contract’s unambiguous termination provisions following a number of clear material breaches by Fujifilm. Not surprisingly, your every attempt to overturn that valid termination has failed and will continue to fail.”
Since the announcement of the termination, Fujifilm has gone to Japanese media outlets claiming that Xerox had no right to renege on what they saw as a fair deal under the circumstances, according to the article in the Rochester Democrat and Chronicle.
Xerox responded to this in its letter stating, “Fujifilm, as 75% owner and controlling partner of Fuji Xerox, has concealed from Xerox the true extent of a massive and ongoing accounting fraud at Fuji Xerox caused by Fujifilm’s own gross mismanagement. The mismanagement and resulting accounting fraud have weighed heavily on our dealings and have cost us both a significant amount of time and money.
“A material portion of Fuji Xerox’s revenue comes from China, which inexplicably has never been formally investigated for the types of accounting fraud that are rampant throughout Fuji Xerox’s other territories despite clear indications of questionable accounting practices. You [Fujifilm] have also failed to prove to us that all of the outright corruption and fraud at Fuji Xerox have been uncovered and remediated, and reports continue to indicate that the internal controls over financial reporting at Fuji Xerox are woefully ineffective.
“Simply put, Fujifilm has failed to prepare Fuji Xerox to comply with the laws and regulations applicable to U.S. public companies, and, as you and your advisors are surely aware, it would likely take years for any such compliance capability to be achieved. In other words, Fujifilm was and is completely incapable of consummating the transactions contemplated by the Share Subscription Agreement.”
Visentin continued in his letter that Xerox plans to move forward by sourcing products from other sources outside of Fuji Xerox and does not intend on renewing the Technology Agreement between Xerox and Fuji Xerox upon its expiration in 2021.
Visentin’s letter outlines Xerox’s plans on future growth after the expiration of the 2021 Technology Agreement stating that, “We look forward to explaining to our investors the enormous potential growth opportunity if Xerox were to sell products directly into the growing Asia-Pacific market with sole and exclusive use of the valuable Xerox name and a more efficient, better managed supply chain than exists with Fuji Xerox.”
In a separate statement, Visentin detailed Xerox’s plan on how they will move forward in protecting their supply chain. He concluded this statement with the reassurance that “Xerox is a proven technology innovator and an exceptionally resilient company; we remain steadfastly focused on creating shareholder value through our renowned innovation capabilities, globally recognized brand, and leading market presence.”
This dispute between Xerox and Fuljifilm is ongoing. Larry Hunt Newsletters will continue to follow this issue, reporting new developments as they emerge from both Xerox and Fujifilm.
This special report was compiled by Hannah Zollweg, the managing editor of Larry Hunt Publications. The information in this report was sourced from the Rochester Democrat and Chronical and a statement from Xerox containing a copy of the letter from Xerox CEO John Visentin to Fujifilm Chairman Shigetaka Komori.
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