MGMT2004 - Negotiation Case Analysis Report Writing - Law Assignment Help

Assignment Task

The final assessment, Negotiation Case Analysis Report, takes the form of a detailed negotiation report to the CEO of an Australian company about their firm negotiation team's recent negotiation experience. The report should provide an assessment of the negotiation process, initial position, expected outcomes, negotiation style, and final outcome. The purpose of the assessment is to develop skills in undertaking research, evaluation of relevant business negotiation conditions, and formulation of criteria for negotiation decision making and recommendations. This assessment is intended to further develop your research and analytical skills in issues related to business negotiations. Please follow the instructions provided in the Format section carefully when writing your report.

AMG and JIL

You are the Chief Operating Officer at a giant Australian energy firm based in Perth, Australia Mining Global (AMG). AMG’s Chief Executive Officer (CEO), Catherine Wark, appointed you in January 2020 to direct AMG’s efforts to acquire a junior Iron Ore miner in Indonesia, Jakarta Iron Limited (JIL). Your responsibility included: (1) completing a feasibility study to acquire JIL; and (2) proposing a pricing structure to successfully bid for JIL. You were given until March 2020 to submit your findings to Catherine.

Your findings concluded that JIL was an undervalued miner, and with modest capital investment from AMG could double its Iron Ore production in 12 months. You valued the firm at $350 million; the equivalent of $1.4 per share for a total of 250 million outstanding shares. You strongly suggested AMG to acquire at least 67% of outstanding shares. Your research suggested that a two-third ownership structure would reap your firm higher profits and could minimise bureaucratic and legal hurdles with the Australian Tax Office.

Your pricing structure for JIL was as follows:
• JIL Valuation: $350 million
• JIL Outstanding shares: 250 million
• JIL Price per share: $1.4

You proposed to offer JIL a 10% mark-up on current valuations, which is standard industry practice. However, you pointed in your report that your resistance point should be at 20% of current valuations.

Proposed acquisition offer/bid: See Appendix One.

• Acquire 67% of JIL’s outstanding shares – 167,500,000 shares
• Target price of $1.54 per share – at 10% mark-up to current valuation of $1.40 per share
• Resistance Point of $1.68 per share – at 20% mark-up to current valuation of $1.40 per share

Your report strongly recommended AMG to retain the entire management and operation teams of JIL for at least 2 years. You also proposed to increase the compensation structure of JIL top management by 20% to incentivise their cooperation after the acquisition.

AMG and INE

Catherine was impressed by your work and wanted to establish a line of communication with JIL as soon as possible. Catherine’s position as AMG’s CEO was challenged in November 2019 for the lack of international deals completed by AMG under Catherine’s leadership. Thus, completing this acquisition as soon as possible was a top priority for Catherine.

Following the presentation of the findings of your report, Catherine invited you for lunch. When you arrived at the lunch venue Catherine introduced you to Alex Smith, the founder and director of International Negotiation Experts (INE), an international negotiation consultancy based in Sydney.

Catherine and Alex were old acquaintances, having graduated from the same business school in 2005. During lunch, you learned that Catherine personally called Alex’s office to schedule a meeting to discuss this acquisition. Catherine revealed to Alex AMG’s interest in bidding for JIL and offered to hire INE to lead the negotiation efforts on behalf of AMG. Catherine further offered you to be AMG’s lead negotiator and to work with INE during the negotiation. However, Catherine made it very clear that INE, and Alex in particular, would be leading the negotiation.

Catherine revealed that beyond your feasibility and valuation report, AMG had not conducted due diligence that could help INE prepare for the negotiation. However, Catherine had been in touch with Mark Olav, an Australian executive who served as Chief Financial Officer for JIL and retired from the firm in 2015. Catherine suggested that INE recruit Mark to aid in the negotiation process.

Catherine was firm about AMG’s intention to make an official bid and to launch the negotiation process in May 2020. Catherine believed that the economic implications of COVID-19 would cause a deep global economic recession, which could result in a global sharp decline in the demand for Iron Ore and other commodities. Catherine supposed that this environment presented an ideal opportunity to bid for JIL.

Alex expressed his concern about the short window of preparation given to INE and tried to convince Catherine to allow at least three months for preparation. Catherine insisted that it would be an easy negotiation, and “probably JIL will easily accept AMG’s ‘generous’ offer”. See Appendix One. You shared Alex’s concerns, but did not express them openly. You also thought that Catherine may have been making a mistake by hiring INE without due process.

Catherine informed Alex that AMG was prepared to compensate INE with a one-time payment of $1 million for their preparation and negotiation of the acquisition. An additional one-time payment of $750,000 would be made if a deal was in fact concluded. To incentivise INE to negotiate the best possible deal, AMG proposed an incentive scheme of $100,000 for each cent lower than the target price of $1.54 per share – See Appendix Two. Alex was happy with the structure and was prepared to immediately sign a contract.

After Lunch, Catherine offered you a one-time payment of $100,000 for participating in the negotiation. Catherine also offered you 1 million JIL shares if a deal was concluded.

Preparation

You joined INE in April to prepare for the negotiation. Alex hand-picked INE’s most seasoned negotiators and formed a negotiation team of seven, including yourself and Alex. The team had three negotiators with extensive international negotiation experience, and two of them could fluently speak Sinhala and Filipino. Alex expressed to you in private that this cultural diversity, and the fact that Indonesian cultural and business dealings could be relatively similar to those found in the Philippines and Sri Lanka, would make the negotiation process progress more smoothly.

INE contracted Mark to consult the negotiation team, and you learned from an INE intern that mark was offered a flat fee of $75,000 and an additional one-time bonus payment of $50,000 if a deal was concluded. You thought this was low for a senior international executive and wondered about Mark’s incentives. Alex informed you that Mark was happy to work with INE but did not want this relationship revealed to JIL. Mark was going to join the team in Jakarta for the negotiation but would remain in the hotel.

INE’s negotiation strategy was centralized around creating value for JIL. INE intended to postpone the bidding process and to generate a positive flow of questions to collect as much information as possible. INE felt that the information provided by AMG on JIL was shallow, and your valuations could have been over-valued or have over-looked some underlying liabilities.

Therefore, INE planned to probe JIL’s team and ask as many questions as professionally possible. At the same time, INE was keen to anchor the negotiation and to provide the first offer. Being incentivised by AMG’s compensation structure, INE wanted to first offer $1.40 per share. You thought that $1.40 was too low and would probably signal to JIL that AMG was not serious about generating value for JIL. Nonetheless, you left Alex and INE to draft and lead the negotiation strategy and tactics.

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