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Xerox Ends Merger with Fuji Xerox, Inks Deal with Investors


Xerox Corporation XRX announced its decision to end the previously announced merger with Fuji Xerox due to a delay in the delivery of audited financials of Fuji Xerox by the stipulated date of Apr 15, 2018. The company also noted discrepancies in the audited and unaudited financial statements of Fuji Xerox.

Fuji Xerox Co., Ltd. (“Fuji Xerox”) is a joint venture between Xerox and Fujifilm, wherein Fujifilm holds a 75% interest and Xerox holds the remaining 25% stake.

Additionally, Xerox inked a new deal with its two investors – Carl Icahn and Darwin Deason – who together hold a 15% ownership stake in Xerox. The new settlement is expected to resolve the pending issue related to its 2018 annual shareholders’ meeting, along with the legal disputes against its directors in connection with the proposed combination with Fuji Xerox.

Terms of the New Deal

Five new members namely Jonathan Christodoro, Keith Cozza, Nicholas Graziano, Scott Letier and John Visentin will be replacing Robert J. Keegan, Charles Prince, Ann N. Reese, William Curt Hunter and Stephen H. Rusckowski.

Gregory Brown, Joseph Echevarria, Cheryl Krongard and Sara Martinez Tucker will continue to serve as members of Xerox’s board.

Cozza — the former Chief Executive Officer (CEO) of Icahn Enterprises L.P. — is likely to be the new chairman of Xerox. Visentin will be replacing Jeff Jacobson as the company’s new CEO.

Additionally, Xerox and Icahn have agreed to withdraw their board candidates from the upcoming shareholder meeting.

Course of Events

On Jan 31, 2018, Xerox and FUJIFILM Holdings Corporation (“Fujifilm”) inked a definitive deal worth $6.1 billion to combine the Fuji Xerox joint venture with Xerox. Per the deal, Fujifilm would own 50.1% of the combined company.

However, the company’s decision was challenged by its two largest shareholders – who not only claimed the Fujifilm deal to be undervalued but also demanded the resignation of the then CEO.

In April 2018, the two investors won a court case and succeeded in temporarily blocking the Fujifilm deal. With the recent termination of the merger, it seems like they have finally won the battle. Not only did they settle for a new contract with Xerox but also succeeded in making necessary changes to its board of directors.

Zacks Rank & Price Performance

Currently, Xerox is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Xerox have returned 7.4% in the past six months, outperforming the industry’s gain of 4.6%.

Stocks to Consider

Some better-ranked stocks in the broader Business Services sector include Automatic Data Processing ADP, Mastercard Inc. MA andBroadridge Financial Solutions Inc. BR. While Mastercard sports a Zacks Rank #1, Automatic Data Processing and Broadridge carry a Zacks Rank #2 (Buy).

The long-term expected earnings per share growth rates for Automatic Data Processing, Mastercardand Broadridge are 11%, 19.03% and 10%, respectively.

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