By Richard Beales
NEW YORK, May 4 (Reuters Breakingviews) - Xerox's directors have snatched defeat for the company from the jaws of a partial victory. Tuesday's settlement with activist investors Carl Icahn and Darwin Deason has foundered over extra legal protection for board members who were set to leave. They and discredited Chief Executive Jeff Jacobson will stay for now, leaving Xerox and its investors in limbo.
The mess stems from the investors' litigation over Xerox's deal to sell itself to Fujifilm for $6.1 billion. Justice Barry Ostrager of the New York Supreme Court temporarily blocked the transaction on April 27, finding Jacobson "hopelessly conflicted" and much of the board more interested in staying in office than properly supervising the CEO.
The settlement would have brought a new CEO and a revamped board. But in addition to a contractual indemnification and release from liability, the departing directors - a group including Chuck Prince, who led Citigroup into the financial crisis and outstayed his welcome there, too - wanted additional reassurance from Ostrager, who declined to give it right away.
On Thursday, Xerox said the now unchanged board and management would consider all options to create value. That's not possible, since they can't credibly pursue an alternative transaction with Fujifilm, although the company is now appealing Ostrager's injunction halting the original deal.
Moreover, it's hard to see other potential buyers or partners working with the current directors and a CEO the board already decided once to replace last year and who just escaped a second near-departure. And as recently as Tuesday, they said the changes agreed with Icahn and Deason were in the best interest of Xerox and it shareholders.
The activists don't have all the answers, but a reboot for Xerox's board and management could open the door to new ideas, new acquirers or simply a better deal with Fujifilm. The two investors' description of the board's decision as "inexplicable" seems spot on - except from the selfish standpoint of the affected directors.
Xerox's owners can dare to hope the impasse won't last. Maybe the directors will settle for the contractual cover that was on offer, or it could be the judge will relent. Meanwhile Jacobson, Prince and the other directors involved are jamming the company's future for the sake of their own - and looking more and more tarnished by copier toner in the process.
CONTEXT NEWS
- Xerox said on May 3 that the settlement agreement it had reached with activist investors Carl Icahn and Darwin Deason on May 1 had expired. As a result, the current board and management will remain in place.
- The agreement, which would have replaced the chief executive and most of the board, expired in the absence of stipulations from the New York judge overseeing the litigation between the parties that would have discontinued litigation against Xerox directors.
- In a statement announcing the May 1 agreement, Xerox had said: "The Xerox board of directors determined that an immediate resolution of the pending litigation and proxy contest is in the best interest of our company and all stakeholders."
- On May 4, Icahn and Deason said: "The Xerox board declined to take the actions they unanimously approved as in the best interest of Xerox shareholders unless they obtained additional unprecedented protections from the court, which all parties (and the judge!) agree are not required under applicable law."
- The judge on April 27 temporarily blocked Fujifilm's $6.1 billion merger with Xerox.
NEW YORK, May 4 (Reuters Breakingviews) - Xerox's directors have snatched defeat for the company from the jaws of a partial victory. Tuesday's settlement with activist investors Carl Icahn and Darwin Deason has foundered over extra legal protection for board members who were set to leave. They and discredited Chief Executive Jeff Jacobson will stay for now, leaving Xerox and its investors in limbo.
The mess stems from the investors' litigation over Xerox's deal to sell itself to Fujifilm for $6.1 billion. Justice Barry Ostrager of the New York Supreme Court temporarily blocked the transaction on April 27, finding Jacobson "hopelessly conflicted" and much of the board more interested in staying in office than properly supervising the CEO.
The settlement would have brought a new CEO and a revamped board. But in addition to a contractual indemnification and release from liability, the departing directors - a group including Chuck Prince, who led Citigroup into the financial crisis and outstayed his welcome there, too - wanted additional reassurance from Ostrager, who declined to give it right away.
On Thursday, Xerox said the now unchanged board and management would consider all options to create value. That's not possible, since they can't credibly pursue an alternative transaction with Fujifilm, although the company is now appealing Ostrager's injunction halting the original deal.
Moreover, it's hard to see other potential buyers or partners working with the current directors and a CEO the board already decided once to replace last year and who just escaped a second near-departure. And as recently as Tuesday, they said the changes agreed with Icahn and Deason were in the best interest of Xerox and it shareholders.
The activists don't have all the answers, but a reboot for Xerox's board and management could open the door to new ideas, new acquirers or simply a better deal with Fujifilm. The two investors' description of the board's decision as "inexplicable" seems spot on - except from the selfish standpoint of the affected directors.
Xerox's owners can dare to hope the impasse won't last. Maybe the directors will settle for the contractual cover that was on offer, or it could be the judge will relent. Meanwhile Jacobson, Prince and the other directors involved are jamming the company's future for the sake of their own - and looking more and more tarnished by copier toner in the process.
CONTEXT NEWS
- Xerox said on May 3 that the settlement agreement it had reached with activist investors Carl Icahn and Darwin Deason on May 1 had expired. As a result, the current board and management will remain in place.
- The agreement, which would have replaced the chief executive and most of the board, expired in the absence of stipulations from the New York judge overseeing the litigation between the parties that would have discontinued litigation against Xerox directors.
- In a statement announcing the May 1 agreement, Xerox had said: "The Xerox board of directors determined that an immediate resolution of the pending litigation and proxy contest is in the best interest of our company and all stakeholders."
- On May 4, Icahn and Deason said: "The Xerox board declined to take the actions they unanimously approved as in the best interest of Xerox shareholders unless they obtained additional unprecedented protections from the court, which all parties (and the judge!) agree are not required under applicable law."
- The judge on April 27 temporarily blocked Fujifilm's $6.1 billion merger with Xerox.