Harvard to Dell Shareholders: Demand Schmuck Insurance
Dell's original plan to buy the company for $13.65 a share has stirred a possible shareholder revolt, the threat of a higher offer from another private-equity firm, and efforts by billionaire activist Carl Icahn to convince Dell to pony up a higher bid.
Here's the first piece of advice for shareholders from The Harvard Program on Negotiation. Go to the link to read the entire post - well worth studying for all negotiators whether you're bargaining with your home decorator or contemplating the sale of your billion dollar business.
To address shareholder concerns that Dell would be buying the company when it is at its most vulnerable and later making a tidy profit at their expense, Barusch recommends that Dell offer so-called “schmuck-insurance.” Less-colloquially, Dell could offer a “contingent value right,” or the right for shareholders to later obtain a payment in the event of a Dell sale or independent public offering. Such contingencies can help negotiators reach agreement by eliminating the need to agree about the likelihood of a future event, such as a dramatic rise in Dell’s value. Instead, through a contingency, they essentially place a bet on what will happen.
Whenever parties are trying to negotiate a deal whose value is contingent on future events, their radically different views of what the future holds can not only provide "insurance" against cataclysim but can bust through impasse created by continued distrust between the parties.
Intellectual property disputes, for instance, are often settled with an agreement by which one party pays the other a licensing fee for five to ten to twenty years in the future. In one case I mediated, the defendants were afraid that the plaintiffs would flood the market with their product in year six, one year after the settlement agreement provided all licensing fees would expire. The plaintiffs contended that they would be discontinuing product sales in year three.
I recommended that the plaintiff put its money where it's mouth was, guaranteeing a significant percentage of profits from sales made by the plaintiff for five years after the date it contended it was certain to stop manufacturing. If it was true to its word, this concession would cost it nothing, but it would eliminate the concerns of the defendants who were preparing to leave the negotiation and return to litigation.
Sometimes, this tactic calls one of the party's bluff and other options must be pursued. In this case, the plaintiff was happy to give the defendant a large share of its fifth through tenth year profits which it believed would be zero.
The case settled thre and then.
You don't have to be the smartest girl in the room to gain strategic advantages like this in your own negotiations. All you have to do is ask yourself what your negotiation partners' interests are - their needs, desires, preferences, priorities and, in cases like this, their attitude toward the future.
As always, thanks to the Harvard Program on Negotiation for continuing to provide such sound negotiation advice to the rest of us.