Xerox Sells Itself to Escape Carl Icahn

In a process set in motion by ex-CEO Ursula Burns in 2016 with the divestiture of its ACS acquisition into Conduent Inc, Xerox sold itself to Fuji Xerox, and ultimately, Fujifilm. Thus ends two years of machinations by Xerox management to save itself from Carl Icahn, the billionaire greenmailer and activist investor. Rolling the dice on the futures of all Xerox’s employees, CEO Jeff Jacobson (Burn’s successor) found a way to save his own job and reward his executive team with rich vested stock options. Nominally the CEO of the combined entity once Fujifilm absorbs the Fuji Xerox – Xerox merged entity, Jacobson no doubt relished his last laugh over Icahn. Icahn, for his part, gets almost $10 a share in cash (along with all other shareholders) and a stake in Fujifilm along with his already earned 10% stake in Conduent. It looks like both men are the winners in this high stakes game of corporate poker, with the losers being the American public–who lose another legacy icon.

It is hard to imagine that Xerox was the leviathan of the corporate community, rivaling the old AT&T and even IBM for technology and influence. But that all came crashing down in the face of intense competitive pressure from Japanese companies Canon and Ricoh during the 1980’s. Xerox went on a diversification binge over the next three decades in an effort to overcome the loss in market share in its core copier business, but was never able to overcome the lethargy of its own management style. A series of accounting scandals in the 21st century hurt its stock price, drawing the attention of Icahn.

Xerox in its heyday had formed two large joint ventures to compete globally. Rank Xerox in Europe and Fuji Xerox in Japan and Asia. Both JV’s were wildly successful, and Xerox eventually sought to buy out their partners. But while Rank Xerox eventually agreed to be absorbed, Fuji Xerox refused.

Fuji Xerox had seethed for years at Xerox’s management incompetence, railing against the slow pace of technological implementation and the lack of improvement in quality. Xerox was so inept at fending off Canon and Ricoh, who gained market share by selling smaller copiers than Xerox  could profitably make, that they were forced to buy such copiers made by Fuji Xerox just to provide alternatives to their shrinking customer base in the US.

Thus it is with some irony that Fuji Xerox, and by extension Fujifilm, have finally solved their decades-old problem by acquiring Xerox outright. No doubt made possible by a combination of Xerox’s poor share price performance, weak management, and depressed enterprise value, it was likely an opportunity that Fujifilm could just not pass up. With the acquisition, Fujifilm finally conquers the last of its old rivals for printing, publishing, and photography. The other vanquished major rival was Kodak, who threw in the towel figuratively several years prior.

With Burns out of the way spending her retirement years sitting on corporate boards, and Jacobson as the figurehead CEO, Fujifilm’s chairman Shigetaka Komori will no doubt be able to consolidate his gains and finally set a clear path in his never ending fight against the other Japanese electronics giants, and his rivals in the world at large.

As for Xerox’s legacy, it will swiftly fade into history. It is an ignominious end to one of the titans of the 20th century and the technological forefather of 21st century giants Microsoft and Apple.  I suspect that it wasn’t the end that Carlson and Wilson, the inventor and CEO best known from the earliest years of the original Haloid Photographic Company, had imagined for the company. I very much doubt that they would have approved.

2/13/18 update. Icahn and fellow activist investor Darwin Deason, who own 15% of Xero in total, objected to the planned fire sale to Fujifilm in an open letter to shareholders. The buyout did not offer a sufficient premium to Icahn’s taste, and he suggested there were better alternatives for the copier giant.

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