Activist investor Carl Icahn and Darwin Deason have urged Xerox shareholders to vote against the Fujifilm deal, calling it the company’s “final death knell”.

US printer and photocopier company Xerox last month agreed to a complex deal that would see it combined with a joint venture the two companies operate called Fuji Xerox, giving Fujifilm a 50.1 per cent stake in the merged entity. Under the terms of the deal the joint venture will pay a $2.5bn special cash dividend, or about $9.80 a share, to Xerox shareholders and shares in Xerox will remain listed.

On Monday, Mr Icahn and Mr Deason, the first and third largest shareholders of Xerox, said in a filing with the Securities and Exchange Commission that the deal “dramatically undervalues Xerox and disproportionately favours Fuji”.

They noted:

When we sketch out the financials of the deal, this is our conclusion: we — the existing Xerox shareholders — are selling approximately $535 million of normalised annual recurring cash flow for about $1.25 billion. In other words, we are selling control of Xerox for a cash flow multiple barely exceeding 2.3x.

In addition, we are also surrendering half of all potential future dividend growth. When considered with these economics in mind, the transaction looks like another depressing display of incompetence by a Xerox Board of Directors with no real skin in the game.

Fuji Xerox, the joint venture between the two firms, previously came under scrutiny when a panel of independent experts found improper accounting practices at two of its subsidiaries dating back to 2010. Both Mr Icahn and Mr Deason, who have previously called on Xerox to explore strategic alternatives, said on Monday that the accounting scandal presented the best opportunity Xerox had “to get rid of this albatross”, terminate the joint venture agreement and gain access to the $36bn Asia-Pacific market.

“To put it simply, the current Board of Directors has overseen the systematic destruction of Xerox, and, unless we do something, this latest Fuji scheme will be the company’s final death knell,” they said. “We urge you — our fellow shareholders — do not let Fuji steal this company from us. There is still tremendous opportunity for us to realise value on our own if we bring in the right leadership.”

Xerox said in response:

A comprehensive review of strategic and financial alternatives conducted over many months by the independent members of the Xerox Board of Directors, in consultation with independent financial and legal advisers, considered several other options in detail and concluded that the combination with Fuji Xerox is the best path to create value for Xerox shareholders.

The transaction provides shareholders with the opportunity to benefit from ownership in a combined company that has enhanced growth prospects and a stronger financial profile to support future value creation, as well as an immediate substantial dividend payment.

Xerox shares, which initially climbed 3 per cent on the news in pre-market trade, were up 1 per cent at pixel time.

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