Where are we meeting?

Posted on February 19, 2008 | Filed Under Tactics | 1 Comment

Your place or mine?  When setting a negotiation meeting do you do it at your location, your “adversary’s” location, or a “neutral corner”?  Not long ago, in the news, we read, “The aircraft maker Airbus [was] among half a dozen companies to sign roughly $30 billion in contracts… with Chinese partners.”  It happened in Beijing.  Well, if you were getting your share of $30 billion, wouldn’t you be willing to travel?  Yes, you would.

Taking a broader view, as professional negotiators we are mostly insensitive to location (ours or theirs), with a few exceptions.  If you’ve done your homework and are well-prepared, there should be no “home field advantage” in terms of your negotiation results.  However, if:

In the end, location shouldn’t matter.  But certain factors - for example: fatigue, delay for logistics, or availability of the right team - will increase your sensitivity to location.  Think about them when you set up your next negotiation. (TD)
 

Cerebrus Capital Management & United Rentals Inc.

Posted on December 16, 2007 | Filed Under Tactics | Leave a Comment

What do you do if you think you agreed to pay too much?  Let’s turn to the financial pages for an example.  But before we begin - we don’t have any inside knowledge about this deal, and we don’t know which side is telling the truth.  It just makes for an enlightening negotiation topic.

In many recent financial articles, it has been reported that Cerebrus Capital Management wants to either renegotiate the terms (including price), or back out of their agreement to buy out United Rentals Inc. (URI).  Cerebrus was willing to pay a $100 million “breakup fee” specified in the agreement.  Good money, but the buyout price was $4 billion.  What happened? 

URI is suing Cerebrus for specific performance on the contract (which essentially means forcing them to do what they contracted to do). In addition, URI alleged that Cerebrus intentionally leaked a letter that said Cerebrus was going to renegotiate, thus causing URI’s stock to drop by more than 30% - which in turn made the old price Cerebrus agreed to a lousy deal.  Two days after that, Cerebrus made a significantly discounted buyout offer, and (reportedly) called it “attractive”.  Ouch.

It is now in the courts.  One thing is predictable.  No matter how it turns out, the future is gloomy. 

(Insert “allegedly” appropriately in the following - basically everywhere.) If Cerebrus leaked, and the buyout price does come down, was this a good tactic?  After all, it’s a $1.2 billion dollar difference.

Our experience shows that buyers and sellers in commercial transactions see these things differently in one key way.  Buyers are more likely to use tactics and get away with it.  Sellers who get caught in an “iffy” tactic are much less likely to get away with it.  Why?  In either case, the side that gets caught in a tactic suffers a tremendous loss of credibility, and of “negotiation capital”.  Negotiation capital can best be described as the other side’s willingness to negotiate with you.  It spends like capital, and comes from an account that can be depleted severely.  Caught in a nasty tactic?  You just emptied your account, and every step in your future negotiations will be harder.   

But why is there a difference between a buyer who gets caught, and a seller who gets caught? Because in the minds of most buyers, there is always another seller.  But in the minds of most sellers, every buyer could be the last one.

We don’t recommend tactics like these - for buyers or sellers.  Your reputation is too hard to get back.  Most of the time, we want a client / supplier for the long term.  Learn to negotiate on the merits of the transaction, and you’ll be more successful. (TD)

BEA and Oracle (Part 2)

Posted on October 28, 2007 | Filed Under Tactics | Leave a Comment

Carl C. Icahn goes over the BEA management team’s head.  Hard on the heels of BEA’s rejection of Oracle’s $17/share buyout offer, BEA’s largest shareholder Carl C. Icahn has sued BEA to force a shareholders’ meeting to vote on the offer.  The negotiations implications are interesting.  BEA now has an internal conflict - Icahn arguably has similar (but not exactly aligned) motivations to those of BEA management.  At the same time, his threat undercuts the strength of BEA’s position that a price of $21 per share is the right one, and supports Oracle’s position that $17 per share is fair.  Interestingly, this would seem to work against Mr. Icahn.  If $21 per share were possible, his benefit would be nearly 25% greater.  What is BEA to do?  Is this pressure (called Negotiations Leverage) real?

Threatening to go “over their head” is a common tactic.  In the real world, these kinds of conflicting motivations within a single “team” are common, and have to be managed.  If you don’t, it will be expensive to your side - it this case, it could cost up to $6 billion.  This is a simple example of the power of negotiations.  Ask us how to avoid losing 25% on your next deal. (TD) 

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