When last we looked, BEA had asked for $21/share, Oracle had offered $17, and key shareholder Carl Icahn was threatening the BEA board with a lawsuit to force action on the offer. Now everyone is in agreement at $19.375. What happened? It’s negotiation leverage and the Negotiation Success Range™ (NSR™) in action.
Disclaimer: we know nothing from the inside. We just read the news, and view it with an expert negotiator’s perspective.
First, some background: BEA needed to restate earnings for 3 fiscal years as a result of an “options problem” and their stock mostly lingered below $15 for five years. Oracle made an offer to buy BEA for $17/share. BEA countered with $21. Icahn said the company should be auctioned and he would take the decision to the shareholders, with or without BEA board cooperation. In our last BEA/Oracle article, we discussed the concept of the NSR™, and how these positions and actions may have been used to either establish the price range for discussions, or be an attempt to shut them down. Without inside knowledge, we can only suggest alternative interpretations. In most negotiations, this is the case — the parties involved have different sets of information and different motivations — no one knows the thoughts of both sides. (And we don’t know the private thoughts of either side.) That’s why they call it “negotiating”.
What did BEA do? Made a deal with Icahn to show him the books, so that he would be more supportive of the higher price. Subsequently, they got him to agree to actually delay their shareholder meeting by a month, and drop his lawsuit. This removed Oracle’s leverage to use a member of the BEA “team” (Icahn) to pressure the BEA board to accept the lower offer. Next, they announced significant profit growth (on slightly declining revenue), bolstering their argument that $17 was not enough. Finally, in either a response to an approach from BEA, or for another reason, HP said they had “no interest” in acquiring BEA. This weakened BEA’s position, since it removed HP as a “bidding competitor” against Oracle. As an interesting side note, HP may have made the statement because of unrelated motivations. While they have a relationship with BEA, they also have similar relationships with other vendors who compete with BEA. One result of the HP announcement could be to calm the fears of HP’s other partners that they might be disadvantaged if HP bought BEA. It is often the case in negotiations that the actions of the parties are driven by unrelated motivations.
Back to BEA. Having competitive bidders does not change the value of BEA. However, BEA is valuable in different ways to different bidders. So, Icahn’s desire to have an “auction” will generally work to raise the price – if there are willing bidders. One mistake BEA apparently avoided – publicly, they never said, “Well, if not $21, how about $19.95?” This could be a signal that they lacked confidence in their position. And, unless they give a business reason for the change, the discussion changes from a negotiation to “haggling”. The way out of this is to change your position with a business rationale. For example: “Our revenue and profit projections were being revised , and we didn’t want to err on the low side. Based on our released projections, we believe that $19.95 is a fair price.” That is an example of a Principled Concession™ — one related to business value.
What did Oracle do? October: offered $17. November: we are “happy to pay” $17. Later in November: “we will no longer pay” $17. December: Oracle’s CFO says, “no friendly deal can be done with the current BEA board at a price and terms acceptable” to Oracle. January: the gavel bangs at $19.375. There are several lessons here. First, the CFO may have hurt his personal credibility and Oracle’s credibility. Why? Because his public positions about the “fair price” didn’t match the end result. This may have been a considered strategy – testing the resolve of the BEA board. Good negotiators may do such things. We only suggest that the decision to take strong public positions and then alter them should be done with the implications and risks in mind. (Remember this if Oracle makes an offer for your company.) If BEA had rushed down to $17 through lack of confidence, it would have been seen entirely differently. An alternative approach would have been to say, “I am very pessimistic that a friendly deal can be done (and so on).” It leaves room for a change in position. There is both art and science to negotiations.
What does all this demonstrate? Negotiating is often complicated, but some principles apply again and again: K&R’s NSR™, the concept of negotiating leverage, the use of Principled Concessions™ when you change your price or terms, the importance of your credibility as a long-term asset, and bringing your team together. The result for BEA was a 14% improvement in the offer price within 90 days — that’s a pretty good ROI. (TD)