Co-Opetition - Adam M. Brandenburger [111]
The client’s optimism and the investment bankers’ pessimism created an opportunity for agreement rather than argument. In the end, both parties agreed to a 0.625 percent fee with a minimum guarantee of $2.5 million. That way, the client got the percentage it wanted and considered the guarantee a throwaway. With a 0.625 percent fee, the guarantee kicked in only if the sale price was below $400 million, and the client expected the price to be $100 million above that. Because the investment bankers had expected $2.5 million under their original proposal, now that this fee was guaranteed, they could agree to the lower percentage.
Negotiating over pure percentage fees is inherently win-lose. If the fee falls from 1 percent to 0.625 percent, the client wins and the investment bankers lose. Going from 1 percent to 0.625 percent plus a floor was win-win—but only because the two parties maintained different perceptions.
The negotiations between the company for sale and its advisers were just the warm-up to the real negotiations between the company and its ultimate buyer. Here again, differing perceptions proved to be mutually beneficial.
The company’s owners thought that the business was likely to continue growing at 10 percent per year, thus justifying their $500-million asking price. The buyer forecast flat growth and offered $250 million.19 The buyer might have tried to convince the owners that their rosy scenario was all wet, but that would have been a mistake. Instead, the buyer used the difference in perceptions to help forge an agreement.
The buyer offered a mixture of cash now and delayed payments based on the company’s future performance. If the company’s growth was flat, the total price would be low. If the company continued to grow as it had, then the seller would get what he was asking for. The benefit of preserving the fog was that each side had a different view of the agreement: the buyer thought he was paying a little, while the owners thought they were getting a lot.20
Negotiating in a Fog
MISTAKES
1. Revealing the minimum you need. You risk getting exactly that and no more. Posturing is no solution; that risks deadlock.
2. Making threats explicit. Even if a threat is already implicit, making it explicit changes perceptions. There’s no going back.
3. Trying to resolve differences of opinion between you and the other party. This is hard to do, and possibly counterproductive.
SOLUTIONS
1. Establish a settlement escrow to promote good-faith negotiating by both parties.
2. Bring in a mediator to help the other party understand the consequences of nonagreement.
3. Recognize what you and the other party do—and don’t—have to agree on. Use differences of opinion to structure win-win deals.
3. Stirring Up the Fog
If you can’t convince ’em, confuse ’em.
—Harry Truman
Simplicity is a virtue—sometimes. Other times you need to make things complicated, even unpredictable. You need to create a fog. A simple game quickly becomes transparent, and you may not always want people to see through what you’re doing.
In poker, you’re unlikely to win a big pot if you bet only when you have a strong hand. That’s because, after a while, the other players will see through what you’re doing. There’ll be no fog. They’ll realize that whenever you raise, it’s becasue you have a strong hand, and so they’ll fold. That gives you an opportunity to bluff and win more small pots. You can raise with a weak hand and trick the other players into folding, but you don’t want to get caught bluffing. Or do you? Professor Tom Schelling, a leading game theorist, has pointed out that there can be a bigger gain from bluffing and getting caught. Now you’ve really stirred up the fog. If people catch you raising on a weak hand, they’ll be much more willing to challenge you in the future when, unbeknownst to them, you raise on a strong hand.
If people understand what you’re up to, the results can be self-defeating. Thus, the Internal Revenue