Xerox says to lower dependency on Fujifilm, seek new vendors

By Laharee Chatterjee and Makiko Yamazaki

(Reuters) - Xerox Corp said on Monday it would start sourcing products from new vendors to lower its dependency on Fujifilm Holdings Corp and may not renew its technology agreement with the 56-year-old joint venture Fuji Xerox.

Fujifilm sued Xerox last week for well over $1 billion, faulting the printer and copier company for succumbing to pressure from activist investors Carl Icahn and Darwin Deason in calling off a proposed merger agreed in January.

In a letter to Fujifilm Chief Executive Officer Shigetaka Komori, Xerox's newly appointed CEO, John Visentin, cited "massive and ongoing accounting fraud at Fuji Xerox" and "numerous contractual breaches" as grounds to not renew the joint venture when it expires in 2021.

"Simply put, Fujifilm has failed to prepare Fuji Xerox to comply with the laws and regulations applicable to U.S. public companies, and, as you and your advisors are surely aware, it would likely take years for any such compliance capability to be achieved," Visentin said in the letter.

In response, Fujifilm said Xerox's argument on Fuji Xerox's accounting issue is wrong. "The accounting issue at Fuji Xerox is properly resolved and no longer exists."

Fuji Xerox, 75 percent owned by Japan's Fujifilm and rest by Xerox, handles contracts that supply global clients with Xerox services in the United States and Europe, as well as Fuji Xerox services in Asia. Moreover, Xerox no longer builds its own office copiers, instead relying mostly on Fuji Xerox.

"Fujifilm's actions have forced us to move forward on several fronts to protect our supply chain," Visentin said.

Xerox named Steven Bandrowczak as its chief operating officer as it looks to build its own supply chain in the fast-growing Asia-Pacific market.

"We do think that Xerox has the ability to build its supply chains and source products from scratch in Asia, although the merger with Fuji would have been the ideal situation," an institutional investor, who holds 5 million shares in Xerox, told Reuters.

A Xerox spokesman did not disclose any details on its sourcing strategy.

Fujifilm said it would be difficult for Xerox to build its sales channels in Asia from scratch as it does not currently have any marketing channel in the region.

Xerox shares fell more than 2 percent to $25.85 in morning trade.

(Reporting by Supantha Mukherjee and Laharee Chatterjee in Bengaluru and Makiko Yamazaki in Tokyo; Editing by Anil D'Silva)