Some shareholders voice doubts, as Fujifilm gains control of printer-copier firm

By David Benoit 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 1, 2018).

Xerox Corp. unveiled a complex deal aimed at shoring up its future in an increasingly challenging environment for document companies -- and now must convince two big investors that the plan, and the man in charge of it, will work.

The printer-and-copier pioneer said early Wednesday that it would sell a 50.1% controlling position, confirming an earlier Wall Street Journal report on the proposed combination of Xerox and its joint venture with Japan's Fujifilm Holdings Corp.

Xerox said the transaction is an opportunity to expand its relationship with an innovative partner and expand into new areas like high-tech labels and industrial printing as the world becomes more digital. It will also allow the companies to cut $1.7 billion in costs, including $450 million that Fujifilm said it will save by cutting 10,000 jobs and shuttering factories at the joint venture.

"People think this is just about printing, but it's the printing technology," Xerox Chief Executive Jeff Jacobson said in an interview. "That is the beauty of this."

But Mr. Jacobson faces doubt about whether he is capable of delivering on that future from activist investor Carl Icahn and fellow billionaire Darwin Deason, who together own about 15% of the company. Xerox shareholders must approve the deal.

The two investors harbored concerns Wednesday about the price Fujifilm is paying, according to people familiar with the matter. They also raised concerns over Mr. Jacobson's proposed role as CEO of the new entity after they previously called for him to be fired. The men are evaluating their next steps, the people said.

Mr. Icahn believes that at the proposed price, Fujifilm is "stealing" the company, according to some of the people. But the activist has already made $250 million on Xerox in the past two years and believes the company and the deal are better than they would have been without his influence, they said.

Mr. Jacobson defended his track record since he took over a year ago when Xerox split from its business-outsourcing operations. Since the separation, Mr. Jacobson said the company has hit "every number," rolled out new products "flawlessly" and moved faster than expected to curtail costs.

"Me becoming CEO was not my choice," he said. "We worked on what would drive the absolute best value for all shareholders. We brought forth a transaction, and then the boards got together and said, `Who is the best CEO to run this combined company?' "

The deal will involve combining the joint venture, Fuji Xerox, with Xerox. Fujifilm is trading its 75% ownership of the joint venture for $6.1 billion, which it will then use to buy 50.1% of the new company.

Xerox holders will get 49.9% of the new firm and a $2.5 billion dividend. Some analysts pegged the value, including the likely boost from the cost cuts, at north of $50 a share for Xerox stock.

Xerox stock jumped 4.8% to close at $34.25 Wednesday. The shares had been around $30 before the Journal reported the companies were discussing a deal earlier in January.

Fujifilm already diversified away from its core product -- film -- and has a successful track record of innovation. Fujifilm Chief Executive Shigetaka Komori, who will become chairman of the new company, to be known as Fuji Xerox, said that would create value for investors.

"I think shareholders will quiet down," Mr. Komori said of Xerox's activists.

The conversations started soon after Mr. Jacobson took over the narrowed Xerox, he and others familiar with the deal said. Xerox executives believed the joint venture was worth $10 billion and wasn't properly understood by investors.

The joint venture has sometimes proved a headache for Xerox because it has a say on research and development and product development in Asia, the key growth market.

The joint-venture agreement had also become a sore spot with Messrs. Deason and Icahn, who complained that it hadn't been disclosed. Though Xerox disclosed the contract Wednesday, the investors remain concerned about its influence in the deal process and whether it hindered the company's ability to get a higher price from another bidder, the people said.

Mayumi Negishi contributed to this article

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

February 01, 2018 02:47 ET (07:47 GMT)