Negotiation Strategies

Negotiating Skills and TechniquesNegotiating Skills and Techniques

Presented by Bart Greenberg

Manatt, Phelps & Phillips, LLP

Continuing Legal Education

Presented by Bart Greenberg

Manatt, Phelps & Phillips, LLP

Continuing Legal Education

Bridging the Gap . . . Business Issues

Bridging the Gap . . . Business Issues

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Can a “Simple” Solution Be Reached?Can a “Simple” Solution Be Reached? Splitting the Pig Trading Terms One Side “Blinks” or “Caves” “Trust Me” or “Wink-Wink,

Nudge, Nudge”• Typical where one party does

not want deal terms reduced to writing

• Consider the “CYA” Letter

Splitting the Pig Trading Terms One Side “Blinks” or “Caves” “Trust Me” or “Wink-Wink,

Nudge, Nudge”• Typical where one party does

not want deal terms reduced to writing

• Consider the “CYA” Letter

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“Trust Me” Example 1:“Trust Me” Example 1:

Merchant Banker Purchases Stock in Client with 50% Nonrecourse Note

“Understanding” that Client Would Forgive Remaining 50% Recourse Portion of Note

Client Goes Bankrupt and Merchant Banker Sued by Trustee for Recourse Portion of Note

Merchant Banker Purchases Stock in Client with 50% Nonrecourse Note

“Understanding” that Client Would Forgive Remaining 50% Recourse Portion of Note

Client Goes Bankrupt and Merchant Banker Sued by Trustee for Recourse Portion of Note

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To Accommodate Investor Tax Position, Documents Will Not Show That Shares Are Being Issued, in Part, for Services

Investor Breaches its Obligations Under Development Agreement

Client Unable to Claw Back the Shares

To Accommodate Investor Tax Position, Documents Will Not Show That Shares Are Being Issued, in Part, for Services

Investor Breaches its Obligations Under Development Agreement

Client Unable to Claw Back the Shares

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In 1990, Client Agrees to Accept 49% of Shares In Order to Make Company Available for Minority Owned Status

From 1990 through 2003, K-1 Reports That Each Shareholder Has 50% Interest

Since 2004, K-1 Allocates Ownership 49% and 51%

In 1990, Client Agrees to Accept 49% of Shares In Order to Make Company Available for Minority Owned Status

From 1990 through 2003, K-1 Reports That Each Shareholder Has 50% Interest

Since 2004, K-1 Allocates Ownership 49% and 51%

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Will More “Creative” Thinking Help?Will More “Creative” Thinking Help? What is Creative Thinking?

• Getting from Point “A” to Point “B” by method not commonly used or known

• Definition of Point “B” is key• Substantive knowledge must

then be applied to determine the path

What is Creative Thinking?• Getting from Point “A” to

Point “B” by method not commonly used or known

• Definition of Point “B” is key• Substantive knowledge must

then be applied to determine the path

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Examples of “Creative” Thinking:Examples of “Creative” Thinking: Consider These Point “B”s:

• Getting shares to the CEO at no cost in order to start the capital gains clock but without causing a taxable event

• Protecting Buyer with reasonable indemnification rights, but at the same time allowing Seller to sleep at night

• Funding Target before Buyer has completed its due diligence

Consider These Point “B”s:• Getting shares to the CEO at no

cost in order to start the capital gains clock but without causing a taxable event

• Protecting Buyer with reasonable indemnification rights, but at the same time allowing Seller to sleep at night

• Funding Target before Buyer has completed its due diligence

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If Creative Thinking Won’t Help . . .If Creative Thinking Won’t Help . . . Reasonable Parties are

Typically Able to Resolve Business Issues

If Parties are Not Able to Resolve Business Issues, Is Something Else Preventing Compromise?

Reasonable Parties are Typically Able to Resolve Business Issues

If Parties are Not Able to Resolve Business Issues, Is Something Else Preventing Compromise?

Bridging the Gap . . .Unequal Bargaining Power

Bridging the Gap . . .Unequal Bargaining Power

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Unequal Bargaining PowerUnequal Bargaining Power

Absence of Compromise May Be Attributable to a Party Believing That It Has Sufficient Leverage to Force its Position on Other Party

If so, and Negotiations Are Stalled, What Options Are Available?

Absence of Compromise May Be Attributable to a Party Believing That It Has Sufficient Leverage to Force its Position on Other Party

If so, and Negotiations Are Stalled, What Options Are Available?

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Example of Unequal Bargaining PowerExample of Unequal Bargaining Power Client Has First Use of Trademark Multi-Billion Dollar Conglomerate

Infringes on Client’s Trademark Client’s Cease & Desist Letter to

Conglomerate is Rejected Client Unable to Devote Enough

Resources to Maintain Fight

Client Has First Use of Trademark Multi-Billion Dollar Conglomerate

Infringes on Client’s Trademark Client’s Cease & Desist Letter to

Conglomerate is Rejected Client Unable to Devote Enough

Resources to Maintain Fight

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Example of Unequal Bargaining PowerExample of Unequal Bargaining Power Negotiated Buy-Out of Stock

Held By 44% Shareholder Fails Shareholder Files for Dissolution

and Shareholder’s Spouse Takes Active Role in Litigation

Spouse Unaware of the Nature of Certain Reimbursements

Shareholder Therefore Highly Motivated to Settle Litigation

Negotiated Buy-Out of Stock Held By 44% Shareholder Fails

Shareholder Files for Dissolution and Shareholder’s Spouse Takes Active Role in Litigation

Spouse Unaware of the Nature of Certain Reimbursements

Shareholder Therefore Highly Motivated to Settle Litigation

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Techniques to Level the Playing FieldTechniques to Level the Playing Field Outsmarting Your Opponent Recognizing, and Negotiating

Within, Your Means Manipulating Your

Opponent’s “Greed”

Outsmarting Your Opponent Recognizing, and Negotiating

Within, Your Means Manipulating Your

Opponent’s “Greed”

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Outsmarting Your OpponentOutsmarting Your Opponent

Your Opponent’s Position May Be Based on a Misunderstanding of Law

If so, and the Misunderstanding of Law Can Be Clearly Articulated to the Opponent, the Opponent May Be Forced to Moderate its Position

Your Opponent’s Position May Be Based on a Misunderstanding of Law

If so, and the Misunderstanding of Law Can Be Clearly Articulated to the Opponent, the Opponent May Be Forced to Moderate its Position

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“Outsmarting” Example 1:“Outsmarting” Example 1:

Negotiated Buy-Out of Stock Held By Holders of 49% of Stock (One of Which is a Public Figure) Fails

Bylaws Indicate that Acts of Board Must be Unanimous

Bylaws Also Indicate that Quorum for Shareholder Meetings is 54%

Negotiated Buy-Out of Stock Held By Holders of 49% of Stock (One of Which is a Public Figure) Fails

Bylaws Indicate that Acts of Board Must be Unanimous

Bylaws Also Indicate that Quorum for Shareholder Meetings is 54%

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“Outsmarting” Example 2:“Outsmarting” Example 2:

Start-Up Develops Supply Chain Software for Multi-Billion Dollar Conglomerate

Start-Up Wants to License Supply Chain Software to Third Parties

Counsel for Conglomerate Sends Cease & Desist Letter to Start-Up

Start-Up Develops Supply Chain Software for Multi-Billion Dollar Conglomerate

Start-Up Wants to License Supply Chain Software to Third Parties

Counsel for Conglomerate Sends Cease & Desist Letter to Start-Up

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Staying Within Your MeansStaying Within Your Means

The Party With Less Negotiating Power Needs to Understand Its Limitations and Not Step Too Far Beyond the Point of Reason

This is Also Known as “Beggars Can’t Be Choosers”

The Party With Less Negotiating Power Needs to Understand Its Limitations and Not Step Too Far Beyond the Point of Reason

This is Also Known as “Beggars Can’t Be Choosers”

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“Staying” Example 1:“Staying” Example 1:

Unstable Target Terminates LOI Because It Does Not Like Price

Target Incurs a Material Adverse Change

Target Informs Buyer that It Has 48 Hours to Close Sale or Target Will File for Bankruptcy

Buyer Closes Sale Within 48 Hour Period at 1/3 LOI Purchase Price

Unstable Target Terminates LOI Because It Does Not Like Price

Target Incurs a Material Adverse Change

Target Informs Buyer that It Has 48 Hours to Close Sale or Target Will File for Bankruptcy

Buyer Closes Sale Within 48 Hour Period at 1/3 LOI Purchase Price

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Diligence Reveals Outstanding Tax and Judgments Liens Against Target, But Target is Unwilling to Adjust Purchase Price

Target Breaches its Facility Lease, Landlord evicts Target and Enters Into New Lease with Buyer

Buyer Purchases Some of Target’s Assets at Fraction of LOI Price

Diligence Reveals Outstanding Tax and Judgments Liens Against Target, But Target is Unwilling to Adjust Purchase Price

Target Breaches its Facility Lease, Landlord evicts Target and Enters Into New Lease with Buyer

Buyer Purchases Some of Target’s Assets at Fraction of LOI Price

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Client Settles Patent Infringement Suit in 2004

Client Breaches Settlement in 2005.

Patent Holder Exacts “Pound of Flesh” in Connection with 2005 Settlement

Client Settles Patent Infringement Suit in 2004

Client Breaches Settlement in 2005.

Patent Holder Exacts “Pound of Flesh” in Connection with 2005 Settlement

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Manipulating Your Opponents GreedManipulating Your Opponents Greed Party With Greater Bargaining

Power Must Recognize When Enough is Enough

In the Absence of Recognizing Such Limit, Excessive Greed on the Part of such Party May Serve to the Other Party’s Advantage

This is Also Known as “Pigs Get Fat, Hogs Get Slaughtered”

Party With Greater Bargaining Power Must Recognize When Enough is Enough

In the Absence of Recognizing Such Limit, Excessive Greed on the Part of such Party May Serve to the Other Party’s Advantage

This is Also Known as “Pigs Get Fat, Hogs Get Slaughtered”

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“Hogs” Example 1:“Hogs” Example 1:

Client Focused on Revenue and Not Profitability

Customer Payable at $2 Million and No Written Contract in Place

Legal Counsel Advises Client to Stop Shipping Pending Agreement

Client Continues to Ship and Payable Reaches $4.5 million

Customer Files for Bankruptcy

Client Focused on Revenue and Not Profitability

Customer Payable at $2 Million and No Written Contract in Place

Legal Counsel Advises Client to Stop Shipping Pending Agreement

Client Continues to Ship and Payable Reaches $4.5 million

Customer Files for Bankruptcy

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“Hogs” Example 2:“Hogs” Example 2:

Buyer Intends to “Grind” Seller at Closing for Price Adjustment

Buyer Unloads “Bombshell” at Closing

Buyer Neglects to Realize That Exclusivity Has Expired

Seller Takes Opportunity to Get Out of Deal with Buyer and Sells to Third Party in 48 hours

Buyer Intends to “Grind” Seller at Closing for Price Adjustment

Buyer Unloads “Bombshell” at Closing

Buyer Neglects to Realize That Exclusivity Has Expired

Seller Takes Opportunity to Get Out of Deal with Buyer and Sells to Third Party in 48 hours

Bridging the Gap . . .Personality IssuesBridging the Gap . . .Personality Issues

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The Unsophisticated OpponentThe Unsophisticated Opponent Issue Mitigated by

Competent Counsel If No Counsel or Counsel

Does Not Mitigate: • Client Should Consider Offering

to Pay Portion of Opponent’s Legal Fees if It Hires Acceptable Counsel

Issue Mitigated by Competent Counsel

If No Counsel or Counsel Does Not Mitigate: • Client Should Consider Offering

to Pay Portion of Opponent’s Legal Fees if It Hires Acceptable Counsel

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The Unsophisticated Opponent (cont.)The Unsophisticated Opponent (cont.) If Opponent Does Not Hire

Competent Counsel:• Client Should Assist Opponent• Client Should Ask Its Counsel to

Draft Opponent’s Deliverables• All Documents May Need to Be

“Dumbed Down”• Client Counsel Needs to Deliver

a CYA Letter

If Opponent Does Not Hire Competent Counsel:• Client Should Assist Opponent• Client Should Ask Its Counsel to

Draft Opponent’s Deliverables• All Documents May Need to Be

“Dumbed Down”• Client Counsel Needs to Deliver

a CYA Letter

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“Unsophisticated Opponent” Example 1:“Unsophisticated Opponent” Example 1: Sample Provision:

• Seller acknowledges and agrees that, although Buyer and its legal counsel have assisted Seller in its preparation of the Disclosure Schedules, Seller has provided Buyer with all documents, agreements and other instruments that are responsive to each of the items to be disclosed in the Disclosure Schedule, Seller has read all of the Disclosure Schedules and fully understand the nature and contents thereof, and has been provided with an opportunity to comment and revise each of the Disclosure Schedules as it deems appropriate. Seller further represents and warrants that each of the Disclosure Schedules fully and accurately discloses all of the information required to be disclosed thereunder in order to ensure that the foregoing statements are true and complete and not misleading.

Sample Provision:• Seller acknowledges and agrees that, although

Buyer and its legal counsel have assisted Seller in its preparation of the Disclosure Schedules, Seller has provided Buyer with all documents, agreements and other instruments that are responsive to each of the items to be disclosed in the Disclosure Schedule, Seller has read all of the Disclosure Schedules and fully understand the nature and contents thereof, and has been provided with an opportunity to comment and revise each of the Disclosure Schedules as it deems appropriate. Seller further represents and warrants that each of the Disclosure Schedules fully and accurately discloses all of the information required to be disclosed thereunder in order to ensure that the foregoing statements are true and complete and not misleading.

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The Unfriendly OpponentThe Unfriendly Opponent Typically Arises in a Distressed

Sale Situation (i.e., Not Voluntary)

Best Strategy Is To Communicate at the Attorney Level or Via E-Mail

If an “All-Hands” Meeting is Made Necessary, Consider Conference Call In Lieu of Physical Meeting

Typically Arises in a Distressed Sale Situation (i.e., Not Voluntary)

Best Strategy Is To Communicate at the Attorney Level or Via E-Mail

If an “All-Hands” Meeting is Made Necessary, Consider Conference Call In Lieu of Physical Meeting

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“Unfriendly Opponent” Example 1:“Unfriendly Opponent” Example 1: Closing Due Diligence Uncovers

Significant Issue Tension Already in Room Due to

Prior Purchase Price Adjustments

Message Communicated Counsel to Counsel in “Side Bar”

Closing Occurs in Two Separate Conference Rooms

Closing Due Diligence Uncovers Significant Issue

Tension Already in Room Due to Prior Purchase Price Adjustments

Message Communicated Counsel to Counsel in “Side Bar”

Closing Occurs in Two Separate Conference Rooms

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The “Difficult” CounselThe “Difficult” Counsel Opposing Counsel May Be

“Difficult” Due to Any of the Following:• Counsel is Not Competent in the

Relevant Field• Counsel is Overly Aggressive• Counsel Has Hidden Agenda

(e.g., Does Not Want to Lose Client) or Is Otherwise Disinterested

Opposing Counsel May Be “Difficult” Due to Any of the Following:• Counsel is Not Competent in the

Relevant Field• Counsel is Overly Aggressive• Counsel Has Hidden Agenda

(e.g., Does Not Want to Lose Client) or Is Otherwise Disinterested

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The “Difficult” Counsel (cont.)The “Difficult” Counsel (cont.) Client May Want to Pay Portion

of Opponent’s Legal Fees if It Hires Acceptable Counsel

If Not . . . :• Encourage More Client to

Opponent Conversations (i.e., Bypass Counsel)

• Client May Want Its Counsel to Draft Opponent’s Deliverables

• “Dumb Down” Documents• Try All Hands Meeting so Client

Counsel Can Interface with Opponent

Client May Want to Pay Portion of Opponent’s Legal Fees if It Hires Acceptable Counsel

If Not . . . :• Encourage More Client to

Opponent Conversations (i.e., Bypass Counsel)

• Client May Want Its Counsel to Draft Opponent’s Deliverables

• “Dumb Down” Documents• Try All Hands Meeting so Client

Counsel Can Interface with Opponent

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“Difficult Counsel” Example 1: “Difficult Counsel” Example 1: “Aint No Big City Lawyer

Gonna Tell Me What to Do!” Opponent Recognizes that Its

Legal Counsel is an Impediment

Client and Opponent Engage in Very Detailed Discussions With Each Counsel Only Working in the Background

“Aint No Big City Lawyer Gonna Tell Me What to Do!”

Opponent Recognizes that Its Legal Counsel is an Impediment

Client and Opponent Engage in Very Detailed Discussions With Each Counsel Only Working in the Background

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The Intermeddling Prima Donna The Intermeddling Prima Donna Typically a Third Party to the

Transaction, Such as a Minority Shareholder, a High Performing Sales Person or Developer of IP, Makes Demands on Seller

Critical Decision is When Client or Opponent Should Negotiate With the “Terrorist”

Typically a Third Party to the Transaction, Such as a Minority Shareholder, a High Performing Sales Person or Developer of IP, Makes Demands on Seller

Critical Decision is When Client or Opponent Should Negotiate With the “Terrorist”

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“Intermeddling” Example 1:“Intermeddling” Example 1:

Minority Shareholder Develops and Hosts Client’s Web Site

Disgruntled Minority Shareholder Breaches Development Agreement and Alleges Misconduct on Part of Controlling Shareholder

Harassed Controlling Shareholder Puts Company Up for Sale

Minority Shareholder Extracts Unfair Share of Purchase Price

Minority Shareholder Develops and Hosts Client’s Web Site

Disgruntled Minority Shareholder Breaches Development Agreement and Alleges Misconduct on Part of Controlling Shareholder

Harassed Controlling Shareholder Puts Company Up for Sale

Minority Shareholder Extracts Unfair Share of Purchase Price

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Seller’s Highest Performing Sales Person Is Encouraged by Wealthy Boyfriend to Renegotiate Comp. Package on Day of Closing

Buyer and Seller Each Contribute to Comp. Package to Get the Deal Done

Seller’s Highest Performing Sales Person Is Encouraged by Wealthy Boyfriend to Renegotiate Comp. Package on Day of Closing

Buyer and Seller Each Contribute to Comp. Package to Get the Deal Done

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Opponent, a 50% Shareholder, Seeks Unfair Reimbursements from Client, Who Is the Other 50% Shareholder

Opponent Shows No Flexibility, So Client Resigns as Employee, Officer and Director and then Establishes Competing Business

Parties Settle for $5,000

Opponent, a 50% Shareholder, Seeks Unfair Reimbursements from Client, Who Is the Other 50% Shareholder

Opponent Shows No Flexibility, So Client Resigns as Employee, Officer and Director and then Establishes Competing Business

Parties Settle for $5,000

Bridging the Gap . . .Communication Methods

Bridging the Gap . . .Communication Methods

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E-Mail CorrespondencesE-Mail Correspondences

Highly Efficient and User Friendly Somewhat Impersonal and Tone is

Capable of Being Misunderstood Attachment Size and Filter Issues Understand and Manage the Risks

of “Reply All” and E-mail Cache Confidentiality and Related Use of

Document Protect and Encryption Unwanted Metadata in

Attachments

Highly Efficient and User Friendly Somewhat Impersonal and Tone is

Capable of Being Misunderstood Attachment Size and Filter Issues Understand and Manage the Risks

of “Reply All” and E-mail Cache Confidentiality and Related Use of

Document Protect and Encryption Unwanted Metadata in

Attachments

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Conference CallsConference Calls

Most Typically Used as a Side Bar or Going Over Business Issues

E-Mail Communication Typically Used to Posture and Frame Issues to Be Discussed

Can’t See “Body Language” and “Multi-Tasking” May Affect Focus

Beware Side Bars Upon a Failure to Properly Disconnect

Most Typically Used as a Side Bar or Going Over Business Issues

E-Mail Communication Typically Used to Posture and Frame Issues to Be Discussed

Can’t See “Body Language” and “Multi-Tasking” May Affect Focus

Beware Side Bars Upon a Failure to Properly Disconnect

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“Face-to-Face” Meetings“Face-to-Face” Meetings

Time Consuming and Expensive Typically Used as a Last Resort to

Steer the Deal Back on Track Consider Using a “Lock the Door

and Nobody Leaves” Approach to Move the Deal More Quickly

Allows Client Counsel to “Bypass” Opponent’s Counsel

Time Consuming and Expensive Typically Used as a Last Resort to

Steer the Deal Back on Track Consider Using a “Lock the Door

and Nobody Leaves” Approach to Move the Deal More Quickly

Allows Client Counsel to “Bypass” Opponent’s Counsel

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The “Formal” LetterThe “Formal” Letter

Due to the Overwhelming Use of E-mail Correspondences, Reserve the Use of Formal Letter for High Impact Statements

Due to the Overwhelming Use of E-mail Correspondences, Reserve the Use of Formal Letter for High Impact Statements

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“Going Dark”“Going Dark”

Effective Tool for Determining How Badly Opposition Needs to do the Deal

Once Initiated, Essentially Turns Into a Game of Chicken

Effective Tool for Determining How Badly Opposition Needs to do the Deal

Once Initiated, Essentially Turns Into a Game of Chicken

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The Form and Timing of ResponseThe Form and Timing of Response Response Time and Manner

Need to Be Calculated In Order to Not Message to Opponent that Client Was Willing to Give Up More

Response Time and Manner Need to Be Calculated In Order to Not Message to Opponent that Client Was Willing to Give Up More

Questions?Questions?

Negotiating Skills and TechniquesNegotiating Skills and Techniques

Thank you!

Presented by Bart GreenbergManatt, Phelps & Phillips, LLP

(714) [email protected]

Thank you!

Presented by Bart GreenbergManatt, Phelps & Phillips, LLP

(714) [email protected]

Negotiation Strategies

Business

Transcript of Negotiation Strategies