Welcome to the Cross-Border M&A negotiation game.
The Cross-Border M&A negotiation is a three level game:
L1. Setting the stage.
L2. The negotiation process.
L3. Structuring the deal.
Is it your first time playing the game?
Are you ready to embark on the next stage of the Cross-Border M&A negotiation journey?
Have you already completed level 1, setting the stage?
Have you already completed level 2, the negotiation process?
Have you already completed level 3, structuring the deal?
Would you like to play again?
Let's begin level 1/3: Setting the stage
Are you sure you want to exit the game?
Step 1/5: Determine the main interests of the other party (besides price).
The game is Stopped or Completed!!!
Put yourself in the other party's shoes and rank her / his interests.
In the 2007-08 negotiations between Ford and Tata over Jaguar and Land Rover, for Ford, preserving its image in the Uk, which represented its 2nd primary market, was more important than the final price.
Did we identify and rank at least 3 interests of the other party (besides price)?
Step 2/5: Determine the alternatives of the other party.
Did we identify and rank at least 2 interests of the other party (besides price)?
Would you like to give it another try?
Assessing the other party's interests can be pretty challenging.
Role Reversal allows you to practice taking the other party's perspectives in the negotiation.
What is important for the other party (besides price)?
What courses of action can they pursue to achieve their interests, besides talking to us?
In the 2007-08 negotiations between Ford and Tata over Jaguar and Land Rover, Ford had two alternatives, represented by two other bidders: the Indian conglomerate Mahindra & Mahindra and the private equity One Equity Partners.
Did we determine at least two alternatives of the other party?
Step 3/5: Identify the Level 2 players in their decision making process.
Level 2 players don't actively participate in the negotiations. However, they are critical actors in the decision-making process.
Level 2 players are advisors, co-founders, shareholders, C-suite executives, board members, and family.
Assess their level of influence in decision-making process and map the relationships among the key actors.
The negotiations involve two British icons, Jaguar and Land Rover. Therefore the unions, the government, and public opinion are critical level 2 players. Interestingly the two companies are still chiefly controlled by the founding families.
Did we determine the key players and their level of influence?
On a scale of 1 to 5, how confident are you with the key players' map results and the assessment of their level of influence?
Mapping the key players and their relationships, and addressing their level of influence is a challenging task
Start with a pencil sketch. Modify the draft when more information becomes available. It is a constant work in progress.
Identify level 2 players that can influence the negotiations from behind the scenes.
Did we identify at least 1 alternative of the other party?
Assessing the other party's alternative can be rather tricky.
Role Reversal allows you to practice taking the other party's perspectives in the negotiation.
Which options can the other party follow if the talks fail?
Would you like to give it another try?
Step 4/5: Evaluate potential synergies (based on the reasons behind the M&A) and the stand-alone of the target company.
Some reasons for M&A are economies of scale and scope, access to intangible assets (technology, expertise, brands, patents), and geographical and product diversification.
Tata's reasons for the acquisitions were access to intangible assets (technology, expertise, brands, patents) and geographical and product diversification.
An overestimation of potential synergies is one of the main reasons behind CBMA failure.
Did we correctly assess potential synergies and the stand-alone value?
Assessing the potential synergies is crucial to determining the premium to be paid.
Overconfident CEOs tend to underestimate the risks associated with a merger or overestimate the possible synergies.
Don't overestimate the probability of achieving the synergy. Don't underestimate the time required to achieve the synergy.
On a scale of 1 (low) to 5 (high), how confident are you with the potential synergies and stand-alone value assessment?
Step 5/5: Upcoming elections further increase the complexity of CBMA negotiations.
Is it election period?
Can we postpone the deal?
Identify players with veto power and sensitive issues at stake.
Would you like to move to Level 2 of the game?
Congratulations! You have successfully completed Level 1 out of 3 of the CBMA negotiation.
Are you ready to embark on the next stage of the Cross-Border M&A negotiation journey?
Let's begin Level 2/3: The negotiation process
Building coalitions reduces the complexity and shifts the power balance of the CBMA negotiation process.
Unions and government are usually two key players in CBMA negotiations.
Step 1/7: Develop a proposal for the unions that takes into account their interests and constraints.
In the 2007-08 negotiations between Ford and Tata over Jaguar and Land Rover, Tata managed to find an agreement with the Unions, ensuring job and production protection, before beginning official talks with Ford.
Does the M&A have the backing of the unions?
Establishing a relationship with the unions is crucial to paving the way for a successful CBMA.
Preserving production, jobs, investments and know-how in the country are some of the key interests of the unions.
Identify and rank the key interests and constraints of the unions.
Are you sure you want to exit the game?
How would you assess your relationship with the unions on a scale of 1(low) to 5(high)?
Step 2/7: Build on the accord with the unions for find an agreement with the government.
Does the M&A have the backing of the government?
Government intervention and nationalism are common in CBMAs, especially when they involve companies with long history and background.
Governments tend to express higher opposition to foreign bids compared to domestic ones.
Governments fear foreign foreign companies will not work in the interest of the country, its society and employees.
How would you assess your relationship with the government on a scale of 1 (low) to 5 (high)?
Procedural justice is based on four principles: fair play, fair representation, transparency and voluntary decisions.
Step 3/7: Procedural justice increases the potential for cooperative behaviour and leads to successful and durable CBMAs.
In the 1998-99 negotiations, Renault's chairman Mr. Schweitzer meets Nissan's chairman, Mr. Hanawa and despite DaimlerChrysler withdrawal, decides not only to maintain the terms of his original offer, but to improve it by making a larger investment in Nissan.
Are procedural justice principles manifest in the negotiation process?
Procedural justice indicates how the negotiations are conducted, how the parties relate to each other and how they are treated during the process.
Greater procedural justice promotes agreements along with more integrative outcomes.
Openness, transparency, impartiality, absence of coercion, and opportunities to have input and representation in the decision-making process are all features of procedural justice.
How would you rate the overall fairness of the negotiation process on a scale of 1 (low) to 5 (high)?
High affective trust between CEOs and top managers, established through shared values and emotional connection, increases the chance of reaching an integrative agreement.
Step 4/7: Determine some common ground and shared interests that could foster the relationship between the two CEOs.
Cultural differences have a limited impact when experienced CEOs are involved.
In the 1998-99 negotiations, Renault's chairman Mr. Schweitzer and Nissan's chairman, Mr. Hanawa, established affective trust since their first correspondence and developed their relationship during the following twelve encounters.
Have the two CEOs developed an (affective) trust based relationship?
Affective trust forms rapidly at the outset of negotiations, leading to more cooperative behavior.
First impressions shape initial affective trust, which then affects behaviors and further increases affective trust.
Establishing a postive cycle of affective trust early in the negotiation promotes agreements and more integrative outcomes.
How would you assess the relationship between the two CEOs on a scale of 1 (low) to 5 (high)?
Step 5/7: Re-examine the other party's interests based on the new information available.
Cross-company meetings at all levels accelerate the post-merger integration phase and influence merger durability by increasing trust between the parties.
Step 6/7: Establish cross-company teams and regular meetings between top executives from the two firms to identify potential synergies and resolve outstanding issues.
The impact of cultural differences is inversely proportional to the level of experience acquired in previous international negotiations by the team members.
In the 1998-99 negotiations between Renault and Nissan negotiations, twenty-one teams composed of more than one hundred engineers and business specialists from both companies explored areas for potential synergies
Are we able to establish cross-company teams and meetings?
How would you assess the effectiveness of the cross-company teams on a scale of 1 (low) to 5 (high)?
Step 7/7: Reassess potential synergies and the premium to be paid based on the proposals developed by the cross-company teams.
Cross-company teams and regular meetings between top executives from the two firms secure procedural justice principles during the negotiations.
Fairness and transparency generate affective trust between the parties, promoting agreements and more integrative outcomes.
The affective trust generated by the cross-company teams enables the post-merger integration phase and improves merger durability.
Congratulations! You have successfully completed Level 2 out of 3 of the CBMA negotiation.
Are you ready to embark on the next stage of the Cross-Border M&A negotiation journey?
Let's begin Level 3/3: Structuring the deal
Step 1/2: Based on the recommendations developed by the cross-company teams, determine the ten main areas the merged company should focus on in the first 100 days.
The main PMI areas often relate to key people retention, cultural barriers, governance, processes, and achieving initial synergies to create momentum.
In the 1998-99 negotiations between Renault and Nissan, the twenty-one cross-company teams determined the main areas for potential synergies, learned about the other company's processes and determined potential governance issues.
Did we determine the ten main focus areas in the first 100 days?
On a scale of 1 (low) to 5 (high), how confident are you with post-merger integration priorities?
Revenue synergies are difficult to identify and quantify and require high planning rigor and commitment.
Synergies achieved during the early stages after closing the deal create momentum.
Research show how the momentum to capture synergies dissipates within 36 months.
Agreements following the principle of equality, provide the foundation for successful PMI and merger durability.
According to the equality principle, both parties are afforded an equal share of any resources, benefits, or interests.
Are there relevant power asymmetries between the parties?
Step 2/2: Develop an agreement proposal that incorporates equality provisions even in the presence of power asymmetries.
In the 1998-99 negotiations, Renault's chairman Mr. Schweitzer included equality provisions related to brand identities, operations, and corporate culture, despite Nissan's precarious condition. Conversely, the partnership's governance was based on the equity principle.