NEGOTIATING THE DEAL

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1. Preparing for Negotiation

2. Building the Negotiation Team

3. Conducting the Negotiations

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 PREPARING FOR NEGOTIATION

 Determine an overall Negotiation strategy ( tone & tenor)

 Balance between hard (economic) and soft (amicable
relationship) issues
 Develop an “alliance aims and constraints sheet”.
 Develop a negotiation road-map ( chronology of different
phases of negotiation).
 Build trust to reduce perception of opportunistic behavior

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 BUILDING THE NEGOTIATION TEAM

 Executive Sponsor – Champion – Should it be the CEO ?

 Outside Facilitators (External Advisors) -Yes / No ?
 Alliance Managers (Should they be the Operating
Managers) ?

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 CONDUCTING THE NEGOTIATION

 Act swiftly but set realistic expectations ( negotiations should

take no longer than 10% of realistic life span of relationship)
 Shape the negotiation environment
- Confidentiality Agreement
- Formation Agreement ( business & geographic scope, ownership
structure etc.)
 Develop a Joint Business Plan (Synergy, business targets)
 Manage Internal Conflicts
 Move Beyond the Contract ( Learning from the Operational
Alliance) 5
 ALLIANCE NEGOTIATION ISSUES
1. ) ESTABLISHMENT ISSUES
- Setting up the JV ( partnership ratio)
- Parties or framework of contract-structure, asset valuation
- Performance Clauses (Goal congruence)
- Restrictions on the partners
- Liability

2.) POST-ESTABLISHMENT ISSUES

- Changes to the contract
- Dispute Resolution
- Share Disposal
- Termination
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 NEGOTIATING STRATEGIC ALLIANCES

HOW TO BARGAIN WITH A PARNER WHO IS CRITICAL FOR YOUR

STRATEGY

1. Play close attention to your partner's unique needs & interests

2. Focus more on creating value, less on distributional battles

3. Emphasize the relationship's long-term performance

4. Give strategic partners the benefit of doubt

5. Avoid surprising partners you care about

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 OWNERSHIP : ALLOCATION DECISION RIGHTS
Lawyer’s Perspective Executive’s Perspective
- Against 50:50 joint - Try for majority
ventures ownership and a controlling
vote on the board, and at
the minimum reserve the
right to veto key decisions.
Best of Both World’s
-Separate economic control
from decision making
control
- Seek the casting vote or
veto power on certain
decisions
- Agree on advance on ten
to fifteen key decisions
- Develop a decision-
making protocol – a road
map of the 20 to 50 most
important decisions and
the decision makers that
will be involved and the
nature of involvement
(propose, consult, advise
etc.)
 STRUCTURE : THE FORM OF THE ALLIANCE TIE
Lawyer’s Perspective Executive’s Perspective Best of Both World’s

-Liability : Appropriate -Do they want an - Combine decision with

structuring for the partners to autonomous business ? respect to autonomous
achieve limited liability - Do the partners plan to management with issues
- Governance : Management make additional investment ? pertaining to governance,
structure – a JV corporation is - If successful will the alliance taxation etc.
managed by elected officers last for three or more years ?
and overseen by a board of
directors; a partnership is run
by general partners)
- Taxation and Accounting
Treatment : whether entity is
taxed as a corporation or a
partnership
- Regulation : Whether
formation of the alliance
agreement is a reportable
transaction.
 SCOPE : WHERE THE ALLIANCE BEGINS AND ENDS
Lawyer’s Perspective
- Define narrowly and
reserve the right for the
parent to expand into
related areas in the future
with or without partner.
- Helps in reducing risk but
can hinder ongoing venture
development , issues with
respect to transfer pricing
will be a continuous source
of conflict and would also
limit the venture’s ability to
adopt to new market
conditions.
Executive’s Perspective
- Create a broad and
autonomous venture with
room for growth.
Restructuring an alliance to
expand its scope can be
even more time consuming
than initial negotiations.
Best of Both World’s
- Create room for growth (
for large JVs the period
should be at least three to
five years).
- Select partners that are
not competitors
- Exclusive arrangements to
be linked to performance
requirements and exit
triggers.
- Anticipate and negotiate
changes in scope in
advance
- Define how parents will
use technology created by
the alliance.
 VALUATION : SORTING OUT ECONOMIC INTERESTS

Lawyer’s Perspective Executive’s Perspective Best of Both World’s

- Negotiate aggressively to - Value assets / set asset - Create 3 deal teams.
minimize client resources transfer price on favourable - Each company to have
devoted to the alliance and terms for the alliance. separate negotiating team
maximize its share of future – a group of executives and
profits or other outputs. lawyers to protect the
parent’s interests.
- Third team to consist of
executives from both sides
to protect the interests of
the alliance- how to
maximize synergies.