The historic merger plans of Xerox and Fujifilm took yet another turn Friday when a judge granted an injunction sought by a top Xerox shareholder against the merger.
Judge Barry Ostrager of the Supreme Court of the State of New York, County of New York, granted the injunction in response to a lawsuit filed by major Xerox shareholder Darwin Deason, along with several smaller shareholders.
Judge Ostrager wrote in his ruling that there was no doubt that Xerox and Fuji had not disclosed some important parts of their decades-old joint venture to the public, including a "lock-up" provision that "restricted Xerox from selling more than 30 percent of its equity to a competitor of Fuji without suffering significant economic dislocations."
That provision came to light only after the Wall Street Journal in January reported on rumors of the merger, after which Xerox on January 31 disclosed the terms of the agreement. However, Judge Ostrager wrote, that was after the deadline given by Xerox for investors to nominate new members to its board of directors.
Judge Ostrager ruled that Xerox and Fuji were enjoined from "taking any further action to consummate the change of control transaction," pending a final determination of the claims in the lawsuit.
Xerox and Fuji must also waive the advance notice bylaw requirement regarding the nomination of board members to allow Deason and the other plaintiffs to nominate potential candidates, the judge ruled.
Both Xerox and Fuji are determined to continue with the merger.
Xerox, in a statement emailed to CRN, said the company disagrees with the court's ruling to stop the shareholder vote on the proposed merger and waive the advance notice bylaw.
"The company strongly believes that its shareholders should be allowed to exercise their right to vote on the transaction and decide for themselves. Xerox will immediately appeal the court’s decision. The Xerox Board undertook a rigorous process to reach its decision to approve the proposed transaction, including a comprehensive review of the company’s strategic and financial alternatives, as well as potential transaction structures in its negotiations with Fujifilm over a ten-month period. Xerox’s Board believes that a combination with Fuji Xerox is the best path forward to create value for the Company and all of its shareholders," the company wrote.
Fujifilm, in an statement emailed to CRN, also disagreed with Judge Ostrager's ruling.
"We disagree with and are disappointed by the Judge’s ruling. We strongly believe that all Xerox shareholders should be able to decide for themselves the operational, financial, and strategic merits of the transaction. We believe the record shows that Fujifilm negotiated with Xerox at arm’s length to create a transaction combining Xerox and Fuji Xerox that is the only option to provide shareholders of both companies with exceptional short- and long-term value. We are considering all options, including whether to appeal the decision," Fujifilm wrote.
The ruling is the latest twist in the move by Xerox and Fujifilm, which have had a joint venture for decades, to merge into a new company of which 50.1-percent would be controlled by Fuji.
The news site CNBC reported in late April that the two, based on comments by their lawyers in the Deason lawsuit, were open to the possibility of renegotiating the terms of their historic merger. However, CNBC a couple days later, after reviewing the transcript from the court hearing, said the lawyers did not specifically discuss the possibility of a renegotiation, but did imply it based on interviews with people in the courtroom at the time.
The back-and-forth between Fujifilm, Xerox and investors stems from the January 31 unveiling of an agreement between Fujifilm and Xerox under which Xerox would cede a 50.1-percent ownership stake to Fujifilm. Under the deal, Xerox shareholders would receive a $2.5-billion special cash dividend and 49.9 percent of the combined company, with Fujifilm owning 50.1 percent.
The Wall Street Journal in mid-April reported that Xerox CEO Jeff Jacobson pursued the company's $6.1-billion deal to merge with Fujifilm Holdings after the Xerox board of directors told him to halt such discussions.
Former solution provider and current venture capital investor Darwin Deason immediately filed an update to his lawsuit against the merger with comments from the story.