Introduction
Negotiation is a decision-making technique that is used by leaders of various organizations to allocate their scarce resources economically. This means that the parties involved in the negotiation process decide on how to allocate their resources through an “interpersonal decision-making process” (Lewicki, Barry, & Soundes, 2010). The parties that are involved in the negation process aim at maximizing the benefits that are associated with the outcome of the process. Thus to achieve this objective, each party must have the essential negotiation skills (Lewicki, Barry, & Soundes, 2010). The case of “Energetics meets Generex” will be used in this paper to illustrate the application of negotiation as a decision-making tool. In this case, Energetics has offered its subsidiary, Wind Corporation, for sale and Generex is interested in buying the business.
Energetics’ Offer
Wind Corporation was initially offered for sale at an unfixed price of $ 300 million. The decision to sell the business at this price was informed by the following reasons. First, even though the business had been offered unsuccessfully for sale two years ago for $200 million, it was likely to attract many buyers at the new price due to the existing growth opportunities in the market (Trexler & Paulson, 2006). Second, Cantilever was interested in purchasing it for $ 225 million which was $ 25 million more than the price that was rejected two years ago (Trexler & Paulson, 2006). Finally, Generex was likely to purchase Wind Corporation at a higher price to expand its operations due to its financial stability. Selling the business to the highest bidder was the rationale behind the high price.
Generex’s Offer
Generex offered to purchase the business at $ 195 million. This decision was informed for the following reasons. First, the book value of Wind Corporation was $189 million. Thus Energetics was likely to accept $ 195 million since the offer would enable it to realize a profit of $ 6 million. Second, the proposal to sell the firm at $200 million had been rejected two years ago. Thus energetic was likely to accept a lower price. Finally, investing in wind technology is only profitable in the long term (Trexler & Paulson, 2006). Thus Generex was not willing to spend more on the business.
The Agreement
Generex rejected the $ 300 million offer because it was too high. Energetics on the other hand rejected the $ 195 million offer because it was below their expectation. Following this disagreement, Generex was informed of the benefits of the business in the long term. They were also informed of Cantilever’s intention to purchase the business at 30 million dollars more. Generex on the other hand offered to purchase the business at a new price of $ 260 million. Generex’s decision was informed by the following reasons. First, the wind energy market is growing at a rate of 20% annually and Generex did not want to miss this growth opportunity (Trexler & Paulson, 2006). Second, purchasing the firm at $ 260 million was cheaper than constructing a new one for $ 350 million. Besides, it would enable the firm to save on time and avoid the uncertainties that are associated with construction (Trexler & Paulson, 2006). Third, Generex did not want Cantilever to purchase the firm since this would give the latter a greater competitive advantage in the market. Finally, even though Generex had the alternative of buying Siemens at $ 40 million less, the investment could have been less profitable since Siemens had a smaller market share. This offer was accepted by energetic because it was the highest offer at the moment. Besides, it was $ 71 million more than the book value.
Summary of the Transaction
We were able to reach an agreement for the purchase of Energetics’ wind division. The final transfer price was $ 260 million. The terms and conditions were as follows. First, Generex was expected to pay the full price before taking over the business. Second, the transactions associated with the purchase of Wind Corporation were to be completed within three months. The transaction was witnessed by the following persons.
References
Lewicki, R., Barry, B., & Soundes, D. (2010). Essentials of negotiations. New York: McGraw-Hill.
Trexler, W., & Paulson, G. (2006). Energetics meets Generex: role information for Energetics. Evanston, IL: Dispute Resolution Research Center.