MATT LEVINE: The story of a really messed-up acquisition and a fired CEO's devious plan
'They talked amicably for a few minutes about the chairman’s recent foot surgery, then Keegan told Jacobson the board had given up on him'
These are not the bullet points that you want to see in your annual performance review.
Chief Executive Officer Jeff Jacobson was aware, too, that the rest of Xerox’s board was dissatisfied with him. In a call that spring, the board had discussed his shortcomings. Robert Keegan, a former CEO of Goodyear Tire & Rubber Co. who was soon to succeed Burns as chair, wrote some of them down in spidery, all-caps bullet points:
- “questionable priority setting”;
- “little strategic thinking”;
- “poor listening skills”; and
Be more constructive with your feedback, please! But by this point, Xerox Corp.’s board of directors wasn’t really looking to give Jacobson pointers on how to improve his performance. (“The Board exhausted every ounce of patience and coaching to make our current CEO a success,” one director wrote to another.) They were looking to fire him.
By midsummer, the board had concluded that Jacobson was incapable of leading Xerox. While he continued to talk with Fuji, they were interviewing replacement candidates. On Nov. 10, Keegan and Jacobson met in Westchester, N.Y. They talked amicably for a few minutes about the chairman’s recent foot surgery, then Keegan told Jacobson the board had given up on him.
But there was one thing to finish up: Jacobson had been negotiating a potential acquisition of Xerox by Fujifilm Holdings Corp., with which Xerox already had an important joint venture, and he didn’t want to rudely cancel his meetings just because he had been fired.
Keegan told Jacobson to stop his talks with Fuji. But Fuji executives were scheduled to fly to New York a few days later. When Jacobson tried to cancel, Kawamura told him Komori “would be very disappointed” and might break off the talks. After reading the texts, forwarded to him by Jacobson, Keegan relented. Jacobson could go to the meeting, and they’d see where things went.
Where did things go? Oh, wild places. I have been remiss in not discussing the Xerox situation much here, because it is amazing, as you can tell from Drake Bennett’s Bloomberg Businessweek feature on the deal. Basically: Jacobson kept negotiating with Fuji; they signed a deal in which Fuji would acquire Xerox for no cash and in which Jacobson would run the Fuji-owned Xerox; the board approved it; a couple of activist shareholders—Carl Icahn and Darwin Deason—objected and sued to stop the deal; they found out about the board’s loss of faith in Jacobson and argued that he had cut a bad deal with Fuji just to preserve his own job; a New York judge sided with the activists; the deal was scuttled and Jacobson eventually resigned.
One obvious lesson is that, when you are negotiating a deal with a giant multinational company, you are actually negotiating a deal with a person (or a few people), and maximizing that person’s (or those people’s) utility can be more important to getting the deal done than maximizing shareholder value. Anyone who has ever sold anything to a big corporation knows this, but it is an uncomfortable fact. There is a spectrum; at one end, it is good to make small talk with the executives and ask about their kids and explain to them how doing the deal will be good for their own careers; at the other end, it is bad to just hand them sacks of cash to get them to agree to the deal.
Helping a merger along by offering the target CEO a good job at the combined company is … a fairly standard move, really
Helping a merger along by offering the target CEO a good job at the combined company is … a fairly standard move, really; it’s the sort of thing that people grouse about in merger lawsuits but that happens a lot. Helping it along by offering the target CEO a good job at the combined company after he’d already been fired is much weirder, though. It’s more or less okay for a CEO to try to preserve his job in a merger; it’s awkward for him to try to rescue his job that way.
We have talked a lot recently about the hierarchies of control at a corporation. In theory the shareholders can vote out the board, the board can fire the CEO, etc. In practice if the board wants to vote out a shareholder, or the CEO wants to fire the board, there are … means. If you are a public-company CEO and your board of directors has told you that it is going to fire you as soon as it can get the paperwork in order, you might as well try to find a new board of directors. Which probably means finding a new owner. Which might be hard if you have already been told that you’re out as the CEO and that you should shut down merger talks. But if you’re creative enough there might be a way.