Investor Throws Roadblock In The Way Of Xerox Split

A major investor has filed lawsuit to stop Xerox Corp. (NYSE:XRX) from splitting into two separate publicly traded companies. Billionaire Darwin Deason claims in the lawsuit that Xerox will destroy the value of his stake in the company if the reorganization is allowed to proceed. The lawsuit against the Rochester, N.Y.-based company was filed Oct. 11, 2016.

The plan would spin off Xerox’s document outsourcing business into a new publicly traded company called Conduent. The 110-year-old Xerox will continue selling photocopiers and scanners. The new entity will provide services to government and industries.

Xerox CEO Ursula Burns announced the split in January, effectively reversing the company’s acquisition of Affiliated Computer Services, a document outsourcing firm founded by Deason in Dallas in 1988. Xerox bought that business in 2010 for $6.4 billion. Deason claims in court papers that Xerox agreed to give him preferred shares intended to compensate him for his stake in Affiliated Computer Services. That preferred stock was valued at $300 million at the time. Xerox shares have risen 13 percent since closing the Affiliated Computer Services acquisition.

Deason is claiming that the company is denying him the right to convert his preferred stock into Xerox common shares and Conduent common shares. Xerox common shareholders will also receive Conduent stock as part of the spinoff. He claims the agreement stipulates that in a “reorganization,” he has the right to convert his investment into common stock, but Xerox has designated the spinoff a “small” distribution — not a “reorganization event.” His preferred convertible stock in Xerox will now be marooned in the legacy business after it spins off Conduent.

Deason asked the court to block the separation of the Conduent business. According to court papers,”(Deason) will lose the opportunity to participate in the growth of the … business that Mr. Deason was responsible for building.” Instead, the company split would leave him with shares in an “unattractive, low-growth document technology business.”

When announcing the plan for the split, Xerox also said activist investor Carl Icahn would get three Conduent board seats after the spin-off. Icahn Associates Corp owns 9.77 percent of Xerox and is the company’s largest shareholder. Deason owns 6.1 percent of Xerox stock and is the company’s largest individual investor.

A spokesman for Xerox called the lawsuit “meritless” and said the company would seek its dismissal. The company is still on track to complete the split, which is expected to be complete by the end of 2016. The services division generates more of Xerox’s revenue, but its technology business drives profit.

 

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