When two companies decide to merge, there are numerous provisions that need to be included in the merger agreement. One such provision that has gained significant attention over the years is the Xerox provision.

The Xerox provision is a clause in a merger agreement that allows the target company to solicit alternative offers from other potential buyers after agreeing to a deal with the original acquirer. This provision is named after a specific case where Xerox Corporation successfully used this clause to solicit a higher bid from Fujifilm after agreeing to a deal with them.

The purpose of the Xerox provision is to ensure that the target company gets the best possible deal for its shareholders. By allowing the target company to solicit alternative offers, it forces the original acquirer to put its best foot forward and offer the most attractive deal. If the target company receives a better offer, it can then terminate its agreement with the original acquirer and move forward with the new offer.

However, the Xerox provision can also cause delays and uncertainty in the merger process. If the target company decides to solicit alternative offers, it can prolong the merger process and cause uncertainty for both parties. Additionally, it can drive up the cost of the transaction as potential buyers compete for the deal.

To mitigate these risks, some acquirers may try to negotiate a no-shop clause with the target company. This clause restricts the target company from soliciting alternative offers and requires it to notify the acquirer if it receives any unsolicited offers. However, target companies may still push for a Xerox provision as it provides them with leverage in negotiations.

In conclusion, the Xerox provision is a critical clause in a merger agreement that can benefit both the target company and the acquirer. While it can cause delays and uncertainty, it ensures that the target company receives the best possible deal for its shareholders. As a professional, be sure to include this provision in any article related to mergers and acquisitions.