Kessler Topaz Wins Preliminary Injunction Temporarily Enjoining Change-of-Control Transaction Between Xerox Corporation and Fujifilm Holdings Corporation

On January 31, 2018, Xerox announced that it had agreed to sell majority control of Xerox to Fujifilm in exchange for Fujifilm’s controlling interest in a joint venture owned by Fujifilm and Xerox.  Kessler Topaz initiated an action in the New York Supreme Court on behalf of Iron Workers District Council of Philadelphia & Vicinity Benefit and Pension Plan (“Iron Workers”) seeking to enjoin the transaction, which provided no control premium to Xerox shareholders, while significantly overvaluing Fujifilm’s 75% interest in the joint venture. 

Following several weeks of expedited discovery and a two-day preliminary injunction hearing, on April 27, 2018, Justice Barry R. Ostrager issued an order enjoining Xerox or Fujifilm from taking any further action to consummate the transaction.  Justice Ostrager accepted the overwhelming majority of facts alleged by Iron Workers and other suing shareholders, which included Darwin Deason – Xerox’s third largest shareholder – who was likewise seeking to re-open the director nomination period to run a full competing slate of alternative directors for election at Xerox’s upcoming 2018 Annual Meeting. 

Among other things, Justice Ostrager determined that Xerox’s “hopelessly conflicted” CEO, Jeffrey Jacobson, “collaborated with Fuji[film] to make himself indispensable to the transaction” after learning that the Xerox board was actively searching for his replacement.  Justice Ostrager further found that Mr. Jacobson “was consistently acting without the knowledge of the entire Xerox Board,” as the majority of directors were unaware that Mr. Jacobson continued to negotiate the transaction after the board unanimously determined that he should stop discussing the potential transaction with Fujifilm.  Justice Ostrager held that the full board likely breached its fiduciary duties by failing to properly oversee Mr. Jacobson’s negotiations with Fujifilm and for ultimately acquiescing to the unfair transaction that Mr. Jacobson negotiated.  

The law and shareholders alike presume that corporate fiduciaries act in good faith to protect shareholders’ best interests.  This injunction confirms that corporate fiduciaries should and must be held accountable when they put their interests ahead of the interests of the shareholders they are supposed to serve.

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