Xerox said its CEO and most of its board will step down to settle a suit by activist shareholders Carl Icahn and Darwin Deason, handing over to new management which will reconsider a contentious deal with Fujifilm.
The move is a triumph for Icahn and Deason, who together hold 15 percent of Xerox. They had criticized the $6.1 billion deal to combine the U.S. printer and copier maker into Fuji Xerox, an existing joint venture with the Japanese company.
The two had already won a rare court order to temporarily block the deal, which they said undervalued Xerox. A New York judge last week agreed that CEO Jeff Jacobson had been "hopelessly conflicted" in negotiating a deal that would put him in charge, since he knew the board was looking to replace him.
"We believe Friday's decision and this agreement mark a watershed moment for corporate governance generally and for Xerox specifically," Icahn said in a statement.
In addition to Jacobson, six others of the 10-member board will be replaced by members backed by Icahn and Deason, while the two shareholders will withdraw their proxy fight as part of the settlement.
Fujifilm, which saw its shares drop 5.5 percent in Tokyo after news of the ouster, said it planned to file an objection with a court over the settlement.
It will also appeal last week's court ruling, it said in a statement, adding that Xerox's new board had an obligation to comply with agreements in January.
In a complex deal, Fuji Xerox would buy back Fujifilm's 75 percent stake in their joint venture before Fujifilm would then purchase 50.1 percent of new Xerox shares. Ultimately, Fujifilm would take control of Xerox, whose brand became synonymous with photocopying.
Xerox said the new board will meet to reevaluate its joint venture deal with Fujifilm, including terminating its relationship with the company.
Keith Cozza, CEO of Icahn Enterprises, will become Xerox's chairman while John Visentin, who had previously led Novitex Enterprise Solutions, will become CEO.
Visentin had previously been hired by Icahn to assist him in fighting Xerox. He had also been a candidate under consideration by the old board to replace Jacobson as recently as last year, according to court documents.
Xerox said it decided to settle given the risks and uncertainty of prolonged litigation. The settlement did not resolve the activists' claims against Fujifilm, which the shareholders have criticized for aiding previous Xerox management.
Icahn on Tuesday referred to Fujifilm as a "supposed 'partner' whose conduct over the last year is more unbelievable than what you see on fictional TV shows like House of Cards or Billions," referring to popular television series about Machiavellian intrigue in the corridors of political power.
The Fuji Xerox joint venture, 75 percent owned by Fujifilm and 25 percent by Xerox, has struggled with slow demand for office photocopying products.
As more businesses go paperless, Fujifilm has looked elsewhere for growth, expanding in biotechnology and healthcare.
Masayuki Otani, chief market analyst at Securities Japan, said Fujifilm's deal with Xerox was "not forward-looking" anyway, and its resources would be better spent focusing on the new areas.
"I think they might be better off putting their energies into the medical business," he said.
Shares in Xerox were flat in after-hours trading, giving the U.S. company a market value of about $8.2 billion.