Co-Opetition - Adam M. Brandenburger [88]
The key to the explanation is in the contract that the Robbie children had earlier given Huizenga. Following the death of their father, the Robbies sold Huizenga a 15 percent stake in the Dolphins and also gave him a right of first refusal on any future sale of the team. Thus, the Robbie children couldn’t sell the Dolphins without first giving Huizenga an opportunity to match the best offer.
Put yourself in the shoes of a prospective bidder for the Dolphins. You invest time, effort, and money lining up financing and hiring investment bankers to do valuations. Will you be able to outbid Huizenga? Doubtful. If it makes sense for you to acquire the Dolphins at a certain price, it makes sense for Huizenga, too. And he gets the right to match your bid and get the team. That’s the best-case scenario. The worst-case is that you actually win the bidding. If Huizenga doesn’t match your bid, that’s strong evidence you’ve overpaid.
Actually, a bidder was in an even worse position than this. Huizenga owned half the stadium where the Dolphins played and also owned the Florida Marlins baseball team, which shared the stadium with the Dolphins. With all these synergies, it’s hard to imagine that acquiring the Dolphins could have been as valuable to anyone else as it was to Huizenga. And someone who outbid Huizenga would have had to negotiate with him over the use of the stadium. Bottom line: entering the bidding for the Dolphins was a losing proposition for anyone but Huizenga.
As it happened, very few people took a serious look at the Dolphins, and there were only two outside bids. One had so many conditions attached that the Robbie children rejected it without even bringing it to Huizenga. The other was the $138-million bid that Huizenga matched when he bought the team. The Wall Street Journal quoted one investment banker’s view of the deal: “If you let somebody take control of the process on the buy side, you can’t get up a head of steam from other outside bidders.”9
What should the Robbie children have done? They shouldn’t have given a right-of-first-refusal provision, or at least not without getting paid handsomely for doing so. Even after Huizenga had his right-of-first-refusal provision, they still could have done better. We saw the solution in the Players chapter. LIN Broadcasting was in a very weak position after Craig McCaw made his hostile takeover bid. That’s why LIN paid BellSouth $54 million to come into the auction. For a lot less money, the Robbie children could have—and should have—paid other people to enter their auction. But they didn’t.
2. Contracts with Suppliers
You and your suppliers, just like you and your customers, are partners in creating value. But here, too, it’s not all cooperation. When your suppliers try to raise prices, that’s competition.
In the Players chapter, we talked about bringing in more suppliers as a way to shift the balance of power in your favor. Gainesville Regional Utility brought in Norfolk Southern railroad as a way to counter the power of its incumbent supplier, CSX railroad. American Express created a buying coalition to bring in more health-care suppliers. In the Added Values chapter, we mentioned how the NFL has restricted the number of teams and their roster size, in part as a way of limiting the added values of football players.
Here, we’ll look at how rules can be used to change the game with your suppliers. The Value Net suggests that for every rule toward customers, there’s a symmetric counterpart with respect to suppliers. So far we’ve looked at two rules toward customers: a most-favored-customer clause (MFC) and a meet-the-competition clause (MCC). Each of these can be turned around.
The supplier-side analogue to an MFC is guaranteeing