Xerox Corp (XRX.N) shareholder Darwin Deason asked a court on Tuesday to block the company's merger with Japan's Fujifilm Holdings Corp (4901.T), claiming the U.S. photocopier maker's board failed shareholders by approving a deal that undervalues the company.
The lawsuit is the latest in Deason and fellow shareholder Carl Icahn's fight to stop Fujifilm from taking over Xerox in a $6.1 billion deal. The two investors, who control 15 percent of Xerox, aruge the transaction dramatically undervalues Xerox and "disproportionately" favors Fuji.
The Fujifilm deal, "must be stopped dead in its tracks," said Deason's lawsuit filed in state court in New York.
Xerox has countered the claims saying that the merger seemed to be the best path for the company after a year of exhaustive examination of a number of alternatives.
"Mr. Deason’s allegations are without merit and the company will vigorously defend itself," Xerox said in a statement.
Under the deal announced last month, Fujifilm plans to combine the U.S. company into their existing joint venture, to gain scale and cut costs as demand for office printing declines.
The joint venture has existed in various forms since 1962 and the current structure dates to 2001. The merger deal is expected to close in July or August.
The joint venture agreements have a previously undisclosed "crown jewel" lock-up right that gives Fuji control over Xerox's intellectual property and manufacturing rights in the Asia-Pacific market if Xerox sells a 30 percent stake to another suitor, according to the lawsuit.
A "crown jewel" agreement is an offer to sell the stock or assets of a company to an investor most desirable to management - to prevent hostile takeovers.
Xerox said that Icahn had been privy to the details of the agreement through his representative, Jonathan Christodoro, on the Xerox Board, while Deason had been aware of the agreement when he sold his company, ACS, to Xerox in 2009.
"These documents have since been publicly disclosed. For any of them to assert that these agreements were 'shrouded in mystery' is disingenuous, at best," the company said in a statement early on Tuesday, before the lawsuit was made public.
Deason also included former Xerox Chief Executive Ursula M. Burns in the lawsuit, saying she was chairman of Xerox between May 2010 and May 2017 and had full knowledge of the Fuji-Xerox joint venture agreements.
In a letter to shareholders, who still have to approve the deal, Xerox said that walking away from the joint venture would require it to completely rebuild its supply chain, which would be extremely expensive and take years to implement.
On Monday, Icahn and Deason, who own a combined 15.2 percent in Xerox, called upon shareholders to free "the company from the shackles of the Fuji Xerox joint venture."
Some analysts have said that Xerox and Fujifilm management seem locked into the deal and have limited options in terms of addressing Icahn's and Deason's opposition.
Shares of Xerox closed down 2.6 percent at $29.17 on the New York Stock Exchange.
(Reporting by Laharee Chatterjee, Aishwarya Venugopal and Supantha Mukherjee in Bengaluru; Editing by Patrick Graham and Tom Brown)