BLACKSTONE GROUP (the Acquirer)

1.

TEAM ASSIGNMENT STRATEGIES

The principles for team assignment are that (1) every member of the team has chance to
participate and contribute to the final result, and (2) a fair amount of workload is allocated on
each person.
During the simulation: We allocated the task of analyzing data and assumption to several
subtasks. Each subtask was handled by two team members. After finishing the analysis, all team
members gathered together to set a final decision on the bid price for Celanese. Then, under the
guidance of our Teacher, we all participated in the negotiation and carried out the negotiation to
the end. All members of our group were participated in the simulation, and there was no one
absent.
During the making of this reports: The team was divided into 3 small groups. Group 1 was
responsible for making the initial draft of this report. Group 2 handled the assumption and
analysis of the Balance Sheet. Group 3 did the assumption and analysis of the Income Statement.
A soft deadline was set out so that the whole team could finish the first draft of this report 5 days
prior to the date of submission. Then, the first draft was sent to all team members for their
comments and additional contributions. The hard deadline was set at one day before the
submission of this report to the Teacher.
2.

TEAM MANAGEMENT STRATEGIES

The objectives of team management are (1) to create a favorable environment for the cooperation
of all members of the team and (2) to control the process of drafting and finalizing the written
report.
Communication was carried out via phone and email to save time. No meeting was held. The
team leader served as the communicator helping the three small groups to begin communication
and contribution. All team members actively participated in the communication to share the
knowledge and results amongst the members of the group.
Every member of the team was successfully contributed to the final product. As each member
has their abilities and strengths, all ideas and contributions from them were valuable and were
appreciated.
The soft and hard deadlines were respected by all team members, so that there were no
difficulties in finishing the written report on time.
3.

SUMMARIES ON MISTAKES AND HOW TO OVER COME THEM

Through the Blackstone/Celanese simulation, we encountered the following mistakes:

3.1.

Lack of preparation

The simulation represented a real Merger and Acquisition case in practice. These were a lot of
information to be analyzed. Moreover, there were many jargons and financial tools showed in the
simulation website what we could not understand fully in order to carry out the analysis and
negotiation.

Within the time period of two classes, we did not have enough time to research all financial
terms and tools given on the simulation website. Hence, we failed to complete all necessary
analyses to conclude the reservation price for Celanese.
This mistake could have been overcome if he had spent more time to read and prepare for the
simulation in advance.
3.2.

Negotiation mistakes

We did many mistakes in the negotiation. Firstly, Blackstone was make an initial move in the
negotiation by offering a quite high offering price for Celaneses shares. With the help from out
Teacher, we realized our mistake and restarted the negotiation with the lowest offering price for
the opposite side.
Secondly, when the opposite side kept defending their required price with an argument based on
the potential of Celanese in Asian market. Actually, the market share and sales of Celanese in
Asian market was quite insignificant. We did not figure out this weak point in the argument of
the opposite side to take advantage in the negotiation.
Thirdly, during the negotiation, we did not know the concept of acquisition premium in M&A.
We placed our bid without considering the premium in the offering price. With the help from our
Teacher, we realized the importance of the acquisition premium in M&A. According to some
sources of information on the internet, we figure out that the acquisition premium is about 20%
to 30% of the cost of buying the target in M&A. Hence, we increased our offering price for
Celanese then.
3.3.

Technical difficulty

The demo website was difficult to use. In our preparation for the negotiation, there was a
connection problem causing all laptops of our team members to be disconnect from the internet.
After reconnection, we found that all the data we had prepared on the website was disappeared.
We think that it would be better if we had prepared those data on papers instead of the simulation
demo website.
4.

LESSONS LEARNT FROM THE SIMULATION

The lessons we learnt from the simulation includes:

4.1.

Negotiation

Negotiation is a tough process. We have learnt several negotiation lessons. Firstly, the one who
makes the initial offer in negotiation is likely to make mistake because of such initial move. A
negotiator should discuss with his opponent first to understand the opposite sides interest before
making the initial offer.
Secondly, when both parties in the negotiation disagree with each other on any valuation results,
the parties can hire a third parties to carry out an independent valuation, a due diligent. This can
help the negotiation to process through the disagreement.
Thirdly, there are several tactics for the acquirer to influence the management board of the
acquiree in order to facilitate the M&A negotiation. For example, we can choose among the
options of (1) increasing offering price, (2) increasing supplemental upfront cash contribution to

pension, or (3) expanding the management stock option pool to persuade the opposite side to
agree with the tender offer.
4.2.

Making assumptions in analysis and valuation

In the process of evaluating the value of the target company, we made the following
assumptions:
In the Balance Sheet:
[ Group 2 please]
In the Income Statement:
[Group 3 please ]
4.3.

Forming the offering price

The offering price per stock for Celanese should include the intrinsic value per stock, as the
result of valuation process, plus an amount of acquisition premium.
The offering price per stock should not be too high. The higher the offering price per stock is, the
lower the NPV of the acquisition is. The NPV of the acquisition should be high enough to make
sure that the IRR of the acquisition is higher than the required return set out by the buyers
shareholders.
5.

IF WE HAVE TO REDO THE ASSIGMENT AGAIN WHAT, WE WILL DO

If we have to redo the assignment again, we would do

APENDIX 1 BALANCE SHEET

APENDIX 2 INCOME STATEMENT