Affiliated Computer Services founder set to become a billionaire in Xerox deal

The founder of Dallas-based Affiliated Computer Services Inc. has long been wealthy, but Xerox Corp.'s proposed purchase of ACS means an $850 million-plus payday for Deason that could push him into the ranks of the richest people in America.

That fortune isn't coming without controversy, though.

Deason, 69, is famous for his entrepreneurial zeal and expensive habits.

Both traits surfaced after Xerox approached ACS last summer about a possible purchase.

According to documents that ACS filed with the U.S. Securities and Exchange Commission, Deason insisted early in the negotiations with Xerox on getting a $300 million premium for so-called Class B shares above what the company's Class A stockholders would receive. Deason is the sole owner of Class B stock.

As the negotiation moved in fits and starts -- Xerox called the deal off at one point -- Deason insisted that the extra payment was non-negotiable.

In the end, he got it, and the $6.4 billion acquisition was announced Sept. 28.

Within a month, nine shareholder lawsuits were filed in Dallas and Delaware alleging that Deason is getting too sweet of a deal compared with other ACS stockholders.

Deason's extra payment from Xerox is certainly higher than in many comparable deals, said Steven Davidoff, a University of Connecticut associate professor of law who focuses on mergers and acquisitions.

"If you look at deals where controlling shareholders have been bought out, it's rare for the controlling shareholders to get a premium," he said.

ACS disagrees.

"We believe the additional consideration received by Mr. Deason is appropriate, and the premium on the announcement date was consistent with other strategic acquisitions of similar scope and size," ACS said in a statement to The Dallas Morning News. Deason declined to be interviewed.

ACS also noted that Deason is responsible for much of the company's success:

"It is important to recall that it was Mr. Deason's vision of becoming a best-in-class company by working harder than its competitors that has led to ACS' long-term success as it delivered significant shareholder returns since he founded the company in 1988."

Deason made his initial fortune when he led a Dallas data processing company called MTech Corp. that was sold in the late 1980s. He then started ACS, which specializes in back-office functions such as payroll and benefits management.

ACS went public in 1994; five years later, Deason relinquished the chief executive duties but kept his chairman title.

Over the years, ACS has grown steadily and, along with Electronic Data Systems Corp. and Perot Systems Corp., strengthened the Dallas area's reputation as a global headquarters for outsourcing expertise.

In addition to the payment for his 43.6 percent stake in ACS, Deason got an $11 million bonus when the ACS board agreed to the Xerox deal.

And he's scheduled to get payments of more than $3.5 million per year through 2014 that equal what he would have earned as chairman if ACS hadn't been sold. Deason's total compensation was $2.47 million this year, $2.99 million in 2008 and $5.97 million in 2007, according to the company's regulatory filings.

Deason will have no executive position with Xerox once the deal closes.

"At closing, I will become one of the combined company's largest individual shareholders, and I intend to remain a long-term investor because I could not be more optimistic about the future of the combined company," Deason said in a public statement when the deal was announced.

The deal will almost certainly go through, but there is a bit of wiggle room.

If it collapses before the finish line, it wouldn't be the first time a seemingly certain sale of the company dramatically imploded.

In response to one of the shareholder lawsuits around the Xerox deal, ACS said it will open its books to any other serious bidders.

So far, no richer bids have materialized. At the time ACS was negotiating with Xerox, an unnamed private equity firm was offering a lower price, according to SEC filings.

But if ACS receives and accepts a higher bid, it will owe Xerox a $194 million breakup fee.

Further, even if ACS and Deason get a better offer, Deason is allowed to vote only half his shares in favor of a new deal.

Assuming the Xerox deal is completed early next year as planned and Deason pockets his roughly $850 million in cash and stock, he'll likely join the more than two dozen other Dallas-Fort Worth billionaires who heavily populate Forbes' annual list of richest Americans. Dallas trails only three other cities -- New York, London and Moscow -- in number of billionaires.

Deason's current net worth is unknown but was estimated at about $500 million in 2003 by D Magazine.

Despite the shareholder lawsuits accusing him of unfairly enriching himself, the deal with Xerox looks like a cakewalk compared with the radioactive meltdown that unfolded in 2007 when Deason himself tried to buy outstanding shares of ACS.

Deason partnered in that $6.2 billion deal with private equity firm Cerberus Capital Management.

But Cerberus backed out after months of inactivity, and, in a public letter, Deason trashed the board members in charge of reviewing the proposal and demanded their resignations. They initially refused and even considered firing Deason and the rest of the management team, but ultimately gave in and publicly accused Deason of "bullying and thuggery."

Deason has long been known for his brash temperament and lavish lifestyle.

The most famous story is from the 2003 D Magazine profile that said he threatened to kill the chef on his 118-foot yacht during a cruise in the Bahamas in 2001. Deason denied the allegation to the magazine, but the tale instantly became corporate legend.

Earlier this month, he bought a 9,300-square-foot oceanfront home in La Jolla, Calif., for $18.2 million. He got a deal -- the asking price was $33 million.

Over the years, Deason has also been involved in several lawsuits and investigations, including a high-profile inquiry into backdated stock options that led to the resignations of two top ACS executives in 2006. Deason was cleared.

He's also known for handing out "hustle" cards to employees to encourage an aggressive atmosphere, as noted in a 2006 Wall Street Journal article.

But Deason might have learned a lesson about being too hands-on.

According to the official timeline of the Xerox-ACS negotiations filed with the SEC, Deason largely stayed out of the discussions after laying out his terms for selling his ACS shares.

"I'm not surprised by that at all," Davidoff said. "He was well advised."

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