Research Paper: Negotiation Stories: Lessons Learned

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Negotiation Stories: Lessons Learned

Negotiation is the framework upon which business and politics are able to function effectively (Tohm, 2001). There are three primary facets of negotiation which exist in the context of factors such as scale, culture, and relative significance of the market. Those facets, interests, priorities, and strategy are constant irrespective of the specific negotiation underway. When negotiations function effectively governments and corporations are able to merge and affect change smoothly without undue disruption to business or the lives of those people directly affected by such changes. When negotiations fail though, it is to the inevitable detriment of all parties involved.

There are four primary types of negotiation that is in the context of the end goal of the strategy (Tohm, 2001). Deal making negotiations are those negotiations related strictly to buying and selling, included therein are mergers such as Pfizer and Warner- Lambert or even a customer haggling over price with a vendor. Decision making negotiations occur when there are multiple potential choices with varied outcomes and multiple interested parties. These types of negotiations are most commonly seen in political negotiations or those involving projects backed by multiple stake holders at times including governments such as the Camisea Gas Project. Value -- claiming negotiations are used in reaching an agreement regarding the proposed distribution of valuable assets. These negotiations can become difficult when production of the asset or the product by which the revenue was acquired are many and having of very diverse conceptions of entitlement. Value- Creating negations are generally more amicable than value claiming negotiations. Value creating negations are a collaborative effort between parties to generate more revenue or assets to be shared. Such was the case in the creation of the now defunct NUMMI by GM and Toyota. Though there are countless interfaces between these very general types of negotiation, the overall purposes of negotiation are generally consistent, the successful achievement of goals either through collaboration, acquisition, or takeover.

Case Study 1: $80B Exxon & Mobil Merger

In December of 1998 two of the largest oil production corporations in the world announced an intended merger. This merger initially slated at $80bn USD would be the largest merger in United States history ("Exxon, Mobil in $80B deal"). The result of this merger is the equivalent of a U.S. based small oil rich country rivaling oil production of OPEC countries and coming closely behind Saudi- Arabia and Iran in terms of daily oil and gas production as well as access to reserves. The Exxon- Mobil Corp. As it is now called retains both brand names and uses existing members of each corporation's senior executives to develop a new board of directors.

The motivation for such a merger was the extreme instability of oil price as well as the relative increase in operating costs exacerbated by the 1973 Arab oil embargo and the decision of Saudi- Arabia not to serve as the regulator of the production goals of OPEC. Between 1994 and 2000 there was a great deal of corporate restructuring occurring in the global oil market, ultimately resulting in the formation of several small oil empires which rivaled the member countries of OPEC in production of oil and gasses. Exxon Mobil, following the merger had access to roughly 21 billion barrels of oil and gas reserves. That amount in reserve, for perspective, is enough oil and gas to meet global needs for more than one year ("Exxon, Mobil in $80B deal").

The merger of Exxon and Mobil was not the result of a desperate financial situation for either corporation; rather the two corporations complemented each other's assets throughout the world advantageously. In light of global industry pressures, Exxon and Mobil following intensive corporate analyses of their assets as well as perspective profits the two corporate giants each valued at the time in excess of $50bn USD decided to merge.

Exxon paid $76.4bn USD for Mobil, more than a 25% market premium, buying all 780 million outstanding shares. The repercussion in the independent stocks of each company showed a slight loss of confidence in Exxon as indicated by a 70% drop, where as there was increased confidence in Mobil as reflected in their 30% stock increase. Ultimately though as predicted by J.P. Morgan Chase, financial manager of Exxon Corporation, stock interest equalized and the newly merged corporation was on track to achieve profit neutrality in its first year and a substantial profit the following year ("Exxon, Mobil in $80B deal")

Case Study 1: Discussion

Exxon and Mobil came together in the face of industry wide pressure to create a unified front both capable of protecting and expanding its interests while maintaining a steady supply of product to their customers at a reasonable rate. The merger was conducted amicably, genuinely integrating both highly brand recognizable into one large multifaceted corporation.

Each company realistically evaluated their assets as well as those assets which could be had as a result of merging and it was deemed not only financially responsible but advantageous to do so. Combined the Exxon Mobil corp. has enough reserve to supply the global needs for over one year, while maintaining research into alternate fuel sources and pockets throughout the world.

The results of this negotiation also had global consequences on the price of oil. The union of these two incredibly powerful companies played an important role in stabilizing the price of oil in the United States in the wake of the turbulent price fluctuations resulting from the nearly unilateral control of OPEC. The companies joined together responsibly and amicably to further the interests of each other equally and bring stability to a crucial yet highly volatile market.

Case Study 2: Kraft takes over Cadbury

From a study several decades old yet highly relevant because of the unusually amicable nature of so large and financially high risk a merger we move to the Kraft / Cadbury merger which came to fruition in January of 2010. Unlike the Exxon- Mobil merger, this business transaction was the hostile assimilation of an iconic British confectionary brand by an American confectionary and food production conglomerate. Kraft foods purchased Cadbury for $19.5bn, ultimately resulting in Kraft foods owning over 40 confectionary brands each of which produce annual sales of over $100million USD every year (Beaudin, 2010). Though the actual fruits of this negotiation are still yet to be seen, much ground work must be laid before any real estimation of success or failure can be accurately gauged, in the aftermath of so hostile a corporate acquisition it is important to reflect upon the different strategies employed and the places perhaps where better more amicable decisions could have benefitted both companies (Wiggins, 2010).

Cadbury Schweppes had been performing poorly in sales and growth since 2000(Beaudin, 2010). A succession of senior executives and board members tried tirelessly to rejuvenate a somewhat tarnished financial image through bold corporate growth strategies. However, the effects of the American credit crunch which left the company vulnerable after it demerged from its soft drinks arm as well as the overshadowing of its new Dr. Pepper Snapple Co. stock sales by the Mars Wrigley merger. Cadbury was after these two consecutive blows to its plans for independence and growth of its confectionary brand a small manageable independent company which was in prime position to be taken over by another larger corporation (Wiggins, 2010). Irene Rosenfeld of Kraft saw an opportunity to become a behemoth multinational food production giant producing everything from cheese singles to instant coffee and now Cadbury chocolates.

Ultimately the decision to sell to Kraft was not made by senior executives. Rather, share holders weighed in and decided in a significant majority that the decision to sell to Kraft at a price of 850p per share was the most recommendable decision (Wiggins, 2010). A factor weighing strongly in the decision to sell as opposed to waiting for a better offer or resolutely maintaining independence was the fact that the shareholder register was composed primarily of hedge funds, many of which were American. Cadbury officials felt that Hedge funds were not interested per se in seeing Cadbury succeed as they were in seeing a significant return on their investment (Beaudin,2010). Allowing Cadbury to remain independent and risk losing not just the Kraft offer which was a premium on the existing share price. Kraft then revised its position after their offer was made formal and public affecting the share price of Cadbury, and the threat of a prominent Kraft share holder indicating that unless the offer was altered to reflect a greater cash to stock ratio he would not vote to support the acquisition (the original offer was 40% cash and 60% stock) (Beaudin, 2010).

What makes this acquisition interesting though is Cadbury's status as a British national treasure, and its cultural significance to the UK. The manner in which Kraft under direction of Rosenfeld handled this acquisition was hostile, public, and extremely aggressive. The highly public takeover has if anything made the risk involved in this acquisition even greater.… [END OF PREVIEW]

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Negotiation Stories: Lessons Learned.  (2010, April 22).  Retrieved December 9, 2019, from https://www.essaytown.com/subjects/paper/negotiation-stories-lessons-learned/763

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