Insights on Business and Sales Negotiation
Join us for insights on how to negotiate a winning balance, where where both sides understand and appreciate the value they receive. As a result, you are more likely to forge a long-lasting relationship that yields more and better opportunities in the future. This idea underpins K&R Negotiations’ Win Wisely™ approach and underlines the importance of using leverage wisely.
BEA and Oracle (Part 3)
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…
Learning from the Stock Market
On the CBOE, the VIX® Index is sometimes said to be a "fear index". It uses a blend of buy and sell options for the S&P 500 index to measure volatility and predict stock movement. At K&R, we find that fear plays just as importantly in negotiations, and leads to certain predictability in transactions.
Often in the Information Technology space, buyers operate under a common fear, "Did I get a good deal? Should I have held out for more?" Strangely, an offer of an additional discount to these buyers only emphasizes their fear. It undercuts any confidence they had that the price was right. This can have exactly the opposite effect of the intent of the discount. Instead of motivating the buyer to close, it makes them worry that there is more to get - an even better deal tomorrow. …
Cerebrus Capital Management & United Rentals Inc.
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…
How Expensive is a Public Embarrassment?
Suppose you are a toy manufacturer located in China. The news is full of stories of contaminated toys. Plenty of unfounded rumors are tagging along. One of your key customers is re-negotiating a contract that is important to you, and price (as always) is an issue. Your customer raises the quality concerns. The customer talks about the massive financial risks of a public outcry, involving the "health of our most helpless citizens, the children" (as the press would say). Your relationship has always been good. None of these problems have been yours. In the end, the customer asks for a lower price, "to provide additional protection". You know that you have the ability to cut the price - there is enough margin in this particular transaction. What now?
This is an example of…
Toray Industries (Japan) and Boeing
How do you act when you are the incumbent? In a Bloomberg.com article, Boeing is reported to be in talks with Japan's Toray Industries regarding a possible 40% increase in Boeing's orders for carbon fiber reinforced materials. The materials are used in building the Boeing 787 airplane, and are Toray's most profitable line of business. This is how the discussions might go...
Boeing: "With our order size increase, you should realize the economies of scale and have reduced manufacturing costs. This should result in a lower unit price for us."
Toray: "Our materials are the finest available for your use. A single-source solution will reduce your build complexity, help your time to market, and accelerate your revenue for this new airplane."
Toray's incumbency with Boeing is a powerful,…
Cognos
If better negotiating is about being better able to express your value, how good are people at expressing value? Buyers pay for value, which is not to be confused with price. If you heard, "this is a $40,000 car, but I will sell it to you for $32,000", what would you think? You would most likely think it was a $32,000 (or less) car. Since IBM just made its largest-ever acquisition, Cognos, we thought we'd look at how Cognos expresses their value. One of their solution overview pages includes this language:
1. "Enables more effective rewards for your workforce, enhancing satisfaction and commitment.
2. Increases customer retention; win more new customers; improve productivity; and raise profits."
There is a distinct difference between these two examples. Number 2 follows a recognizable…
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Creating Value-Based Leverage
In this short video, learn why negotiation is really the art of finding agreement.
Mladen Kresic introduces the concept of value-based negotiations leverage and why it is a powerful tool for moving conversations to an agreement.
