07 May 2018 Business

Jacobson becomes the hokey-cokey CEO as Xerox drama adds futher twists

Jeff Jacobson was in and out and in as Xerox CEO last week as its battle with 'value hunting' shareholders continues.

Jeff Jacobson remains CEO of Xerox, following a tumultuous week in which he started as CEO, was ousted and returned to the position a few days later as the battle for control of the business intensified. This is being fought out in the US courts rather than by winning the minds of shareholders. At stake is the proposed merger with Fujifilm and Jacobson's long term position.

The courtroom clash has overshadowed publication of Xerox’s Q1 results which show the company’s performance improving, albeit gradually and with revenues in slow decline. Chief financial officer Bill Osbourn was left to provide the commentary in the brief absence of Jacobson and five other board members.

“In the first quarter of 2018, we grew adjusted operating profit year over year, excluding equity income and continued to generate significant cash flow,” he says.

He does not point out that a total revenue of $2.4 billion is down 4.6% in constant currency terms with equipment sales of $499 million down 6.4% by the same measure and post sale revenue (service, consumables etc) fell 4.1%. The strengthening dollar helped reduce the pain.

In the equipment sales, the 6% increase in production equipment installed was helped by growing demand for Versant printers (based on FujiXerox technology) while demand for the iGen flagship machines (100% Xerox built) was lower than in the previous year. Revenues from continuous feed presses also fell, in part due to timing issues says the company. Demand for mono machines continues to fall.

Nevertheless by keeping tight control over the expenses, reducing R&D spend and general expenses, Xerox turned a gross profit of $970 million ($975 million) in the quarter to a pretax profit of $134 million ($16 million loss). restructuring costs had been absorbed in last year’s return.

According to the activist shareholders led by Carl Icahn, this is not good enough. In his presentation to shareholders, Icahn has stressed the speed of cost cutting and the limited impact as well as the supposed opportunity for selling services as well as equipment through an expanded dealer network, the fruit that lies ready in Asia should the partnership with Fujifilm be severed and the chances of tying up with another provider of print technology on better terms than the Fujifilm deal.

Last week was the assassination attempt on Jacobson. In the first submission to the court, Jacobson was accused on continuing to pursue a merger with Fujifilm when told to cease and of doing so to save his own post, resulting in a poorer result for shareholders.

The deal with Fujifilm was announced immediately ahead of his replacement as CEO by John Visentin in December last year and last week Visentin was the 24 hour CEO of Xerox before Jacobson returned.

Visentin has worked for IBM and HP in the past and more recently in senior roles businesses were reengineered. This has earned him the regard of Apollo Global Management where he served as CEO of Presidio, an Apollo company in 2015. Now Apollo has expressed its interest in a potential acquisition of Xerox. Carl Icahn and Darwin Deason now say they will support a takeover bid for Xerox that exceeds $40 share. The company's shares were trading at $28.40 on Friday, 40% below the target the activist investors have set.

Fujifilm has been largely silent, if embarrassed at the noise the takeover has generated. It has said it has been renegotiating the terms of the deal.

Gareth Ward

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Decisions about control of Xerox are being decided by the courts as the activist shareholders table actions and the Xerox board seek to block the moves which aim to stall the point at which the entire shareholding gets to vote on whether to accept or reject Fujifilm's offer. Meanwhile the results for Q1 show some improvements, but possible not enough.

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