Photographer: Michael Nagle/Bloomberg

Icahn, Deason Urge Xerox to Oust CEO, Explore Alternatives

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  • The two have ‘little faith’ in ‘old-guard’ investors
  • CEO Jacobson in post just a year; at company since 2012

Carl Icahn is teaming up with fellow Xerox Corp. investor Darwin Deason to urge the company to explore strategic alternatives and shake up its joint venture with Fujifilm Holdings Corp.

The pair -- Xerox’s first and third largest shareholders respectively -- collectively own about 15 percent of Xerox, or more than 40 million shares, according to a letter Monday. The investors plan to form a group that will seek the election of four new directors.

“We have little faith that Xerox’s “old guard” directors will listen to us, which is why real change is needed now more than ever,” the investors said in the letter to fellow shareholders. 

Icahn and Deason also called for Xerox to immediately replace Chief Executive Officer Jeff Jacobson, who has been in his post for barely a year. At Xerox since 2012, Jacobson previously served as the chief operating officer of the printer and copier business, before Xerox spun off its information technology services group in 2016. 

Icahn associates Jacobson with the old guard resistant to change. He said in a letter last week that the CEO is “is incapable of (1) introducing new products that do more than play catch-up to competitors and (2) acknowledging that cost-cutting alone is not a formula for changing the current alarming revenue trajectory of “mid-single digit” annual declines.” In that same letter, Icahn complained that Xerox failed to bring in an external CEO.

While Xerox became famous for its hardware, it has fallen on hard times as Canon Inc. and other competitors from Asia eroded its dominance and email and other forms of electronic communications took over.

For an analysis of the relationship between Xerox and Fujifilm, read here

Xerox and Fujifilm have a 55-year-old joint venture --Fuji Xerox Co. in the Asia Pacific region. That venture is the subject of a recent accounting probe into its practices in New Zealand and Australia, which has prompted Icahn to call for renegotiating or scrapping their agreement. The Wall Street Journal reported earlier this month that the two companies were in talks to strike a deal that may or may not include a change of control at Xerox.

“Every day that the ‘old guard’ remains in power -- feebly overseeing the company’s steady decline -- is a waste of time that could inevitably erode the value of our investment down to nothing,” Icahn and Deason wrote.

Members of Xerox’s board include Greg Brown, CEO of Motorola Solutions Inc., Joe Echevarria, former CEO of Deloitte LLP, and Cheryl Gordon Krongard, former CEO of Rothschild Asset Management. 

By traditional definitions, Xerox doesn’t have an entrenched board. The average tenure of its members is just under six years, according to data compiled by Bloomberg. That compares with the average tenure of 8.7 years for S&P 500 Index companies, according to the 2017 Spencer Stuart U.S. Board Index. Xerox directors on average are 62.7 years old, about equivalent to the average age of independent board members according to the Index.

Icahn and Deason reiterated calls for Xerox to renegotiate its joint venture with Fujifilm and disclose the terms of the agreement. It’s unclear what Icahn is seeking specifically, and it’s unlikely he’ll be able to get Fujifilm to buy Xerox outright, said Jim Kelleher, an analyst at Argus Research. The current joint venture gives Fujifilm access to the North American market without needing to take on operational and inventory risks, he said.

“I don’t see a logical North American buyer and don’t see why Fuji would have incentive to buy them either,” Kelleher said. “I can’t see a happy outcome.”

Xerox shares were up 2.3 percent, to $32.53, at 12:17 p.m. in New York.

“Jeff Jacobson hasn’t been in the role for that long -- I don’t know what’s served by getting rid of him,” Kelleher said. Xerox’s hardware business has been “in structural decline, and they already outsource most of their technology from Fuji,” he said.

Xerox’s board and management team are “confident with the strategic direction” of the company and will continue to take action to create value for all shareholders, according to an e-mailed statement.

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