With the satisfactory due diligence work and pricing performed (although still needing to be updated throughout the deal), a company will know, as much as is possible, the strengths and weaknesses of the target. Then, if it continues to make strategic sense, the parties progress rapidly towards the stage of finalizing the details of the deal and signing the sale and purchase agreement. Feeding their due diligence work into the closing negotiations, the various parties to the deal process should typically employ business intelligence techniques to identify those risks which can be mitigated by way of some sort of “protection,” such as a price reduction or warranty which would be conditional as part of the deal closure. Excellent intelligence will also enhance the negotiating strength, fulfilling the aphorism: “Knowledge is power.”

Business Intelligence in Effective Negotiations

For the participants in a deal, the final stage of the negotiations – replete with posturing, horse-trading, wrangling, and perhaps even threatening to walk away – is best conducted with Sun Tzu's “foreknowledge.” Any information about the other parties to a deal is useful, not simply of opponents but also about your own company, business partners, and providers. Such information can aid the conclusion of a deal with a greater degree of value to whosoever secures it. Whether employing considerable ingenuity to obtain information or doing so with little trouble, business intelligence can play a pivotal role for the various constituents in an M&A deal allowing each side to unearth their opponents' real motivations and imperatives, their attitudes to risk and uncertainty, their speed of change and decision making, and their focus on the big picture versus the detailed minutiae of the deal.

Conducted in an atmosphere that is more often than not enveloped in intrigue and maneuvering and surrounded by an atmosphere of time pressures, the final stages of a deal involve the various players obtaining and evaluating as much intelligence and private information as possible about the target or bidder in order to gain favorable positions during negotiations. Used to determine a range of negotiation parameters and develop an appropriate set of bid and defense strategies and tactics, parties to an M&A transaction employ intelligence techniques to their advantage in order to gain the upper hand over their rivals. Thus, employed to negotiate a better deal for themselves, good negotiators try to uncover damaging information at this stage, allowing management a better negotiating position. This hopefully leads to more realistic pricing and thus reduces the risk of overbidding.

In light of the hostile environment in which M&A deals are sometimes conducted and the anxiety and determination of parties to put one over on the opposition, it should come as no surprise that professional advisors such as George Magan (formerly of Morgan Grenfell), if advising a client on a bid, would, as reported in the Evening Standard in 2004, “ask a corporate investigation agency to look at the client, to shake out the skeletons from their cupboard [in order] to see what the other side might throw at them. …” In short, by enabling parties to a transaction to maintain either a strong competitive bid or defense position for as long as possible, business information keeps the tension in the deal right up to the point at which the deal closes. It is no wonder, therefore, that M&A transactions grab the business headlines in the way that they do.

Yet, the M&A process also carries with it vast potential commercial risks for both the buyer and the target company by exposing various forms of business intelligence to an existing or potential competitor. Whether disclosing trade secrets or confidential information, due diligence (and the wider M&A process per se) may ultimately weaken a seller by divulging the problems of a target business to a prospective buyer. Thus, from this standpoint, the whole deal process becomes a double-edged sword, simultaneously necessitating companies to lower their guard and impart confidential information to competitors, yet without a guarantee that the deal will ultimately be consummated. This is why the use of clean teams has been increasing.

As much as in other elements of the M&A cycle, there is conceivably no end to the use of business intelligence in the latter stages of any M&A deal process. Once detailed due diligence has begun, the multitude of actors in any deal get down to the real business. As in poker, the chips are on the table, the face cards have been revealed, but the hole cards remain unknown. If that final piece of information can be acquired, the deal can be concluded precisely to the acquirer's (or target's) satisfaction. They interact with one another, swapping and leaking valuable information and disinformation in order to drive the deal towards a conclusion – one way or another.

Each of the participants uses different levels of intelligence gathering to gain a sustainable competitive advantage in the M&A game. It is of no consequence whether they are corporate organizations using investment bankers to build a profile of shareholders (and so draw conclusions regarding the price at which they would be likely to sell), event-driven hedge funds (acting as arbitrageurs) betting on short-term price movements in companies' share prices, or private investigation firms sifting through professional advisors' rubbish bags in order to glean nuggets of information for their clients. Like poker, the game will be won by the player with the most resources and most information – or perhaps with the best ability to bluff, although the longer-term consequences for an effective integration may be poisoned by such an approach. While the accepted wisdom is that friendly bids can be completed without much of the business intelligence needed for hostile or unfriendly takeovers, it must be understood that friendly bids can turn unfriendly. Therefore, it is always sensible to gather as much information as possible in all situations.

The nature of friendly bids with unlimited access to the target can lead managers to assume that less rigorous due diligence is needed than for hostile deals in which access to the company is limited or non-existent. This attitude should be avoided. Sometimes the target won't know itself as well as the bidder would wish. More often there are things that are not known by, or even deliberately hidden from, management.

Takeover Strategies

Since the advent in the 1970s and 1980s of stronger target defense mechanisms, hostile mergers have focused on three major tactics which may be exercised with the element of surprise to gain even greater advantage: “bear hugs,” tender offers, and proxy fights. But even before initiating one or more of these mechanisms, a bidder should consider whether it should try two other tactics: toehold share purchases and a “casual pass.” Each of these is discussed in greater detail in this section. Of course, as covered in the earlier chapters, any action taken as part of the merger and acquisition process should be part of a grand strategy, and the tactics covered in this chapter would be part of that overall process.

Toeholds

Toeholds are purchases of stakes in a public target's stock, usually below the regulatory disclosure threshold. These thresholds differ by country (currently 5% in the US and 3% in the UK) and are subject to change. For example, the Dutch legislature reduced the disclosure threshold from 5% to 3% at the end of 2012.

Multiple toeholds may also be purchased in alternative targets, in case the bidder later discovers that their first-choice target either has defense mechanisms that are too strong to overcome or because the due diligence process uncovers reasons not to pursue that particular target. Here again, the value of timely intelligence cannot be understated. There may be a point at which the negotiation, because of legal agreements exchanged, has been allowed to proceed so far that it is impossible to exit. Even if not prohibited from exiting by legal documents, it may be difficult for management to disengage from the deal because of statements made or public pressure, if it has been leaked or announced externally. Consequently, the earlier that intelligence is gathered the more value it adds to the negotiation.

If the number of shares purchased is above a certain threshold, stock exchange regulations in most countries require that the purchase be made public, and other restrictions may also then come into effect. For example, in the UK, once holdings reach more than 3% of outstanding stock, this must not only be disclosed within two days of purchase, but all future purchases must also be disclosed. This has the effect of announcing to the market that a potential bid may be under way, especially if the purchaser has a history of buying companies.

Establishing a toehold may allow for less expensive purchases of a target's stock, because the toehold is typically purchased before any announced bid for the company and therefore before any acquisition premium is added to the stock price. This toehold may therefore lower the average cost of the takeover (the opposite can also occur, depending on market conditions). In some jurisdictions (for instance, the UK), there are rules governing the price of the offer if a toehold has been taken (that is, the offer must be at least as high as the highest price paid for shares in the prior three months). Another advantage to the toehold is that it may give the bidder leverage with the management of the target as the acquiring company is now both a bidder and a shareholder. Should there be any decisions put to a shareholder vote, the bidder now controls some of the stock. Similarly, the bidder in some jurisdictions may gain access to information otherwise not available if it were not a large shareholder.

Although it would seem axiomatic that any hostile bidder would want to have a toehold in the target before launching a public bid, a 1998 study by Arturo Bris at Yale University found that only 15% of his sample of hostile deals in the US and UK had initial toehold purchases and the authors of another more recent study published in early 2006 by the European Corporate Governance Institute were puzzled when they found that only 11% of initial bidders in more than 12 000 contests had toeholds. This is especially surprising as research also shows that deals which included a toehold were more likely to succeed and at a lower cost to the bidder than deals where none had been taken (as noted above), despite the fact that the toehold risks signaling a potential bid to the market if the position is disclosed.

Many times a toehold is purchased from one or just a few shareholders. This has the advantage of keeping the purchases quiet until such time as the bidder wishes to disclose its purchases (assuming that the amount purchased is below the disclosure threshold). Another variation is to carry out open market purchases, typically using multiple brokers in order to disguise the bidder's intentions. Care must also be taken in the purchase of a toehold below the disclosure threshold because if it does become known later that such a shareholding had been kept secret from the target, this would usually signal that the bid was unfriendly. This can make later cooperation in the post-deal integration more difficult.

One further variation is known as a “street sweep” (so called first in the US because the bidder is trying to sweep up all the shares it can on Wall Street, the location of the New York Stock Exchange and the traditional headquarters of many of the US brokers). Street sweeps are purchases of as many shares as possible in the public market in as short a time as possible, very often done overnight or within a few hours. In essence, this is a toehold taken immediately to its logical conclusion – control of the company or as close as possible. It is difficult to keep such purchases secret. When word gets out, the price of the stock rises. At this stage disinformation techniques can be used to deflect attention away from the street sweep for a sufficient amount of time to allow the requisite number of shares to be purchased.

Street sweeps can be done as an alternative to a tender offer (see the Hanson Trust plc case study later). But as noted above, after crossing the 5% (US) or 3% (UK) threshold, the bidder has to disclose its purchases to the regulators. In the UK, purchases in excess of 10% of the shares within a seven-day period may constitute a takeover bid and have other implications; purchases above 30% require a bid for all of the shares. There is a critical need to be aware of these regulatory share ownership thresholds as well as other laws and regulations governing the purchase of companies (including competition laws), especially as they may change at any time and can differ dramatically by country.

One further point should be noted here, and that is the difference between purchases of public and private companies. Most of the discussion in this chapter relates to publicly-listed companies because it is these companies that can be purchased in hostile bids, where the buyer can choose to ignore the board and management of the target company and purchase shares from the stockholders. This is typically not possible for private companies, where the shareholders and management are often the same or more closely aligned (as with family-owned businesses even after several generations, although certainly exceptions exist where the owners within the same family will fight for control against each other).

Casual Pass

The “casual pass” is when a bidder attempts a friendly overture in order to determine whether the target company would be interested in a sale, such as situations in which the target has not put itself up for sale. It also may be done prior to initiating a hostile bid, giving the opportunity to the target to avoid the difficulties of a public hostile bid by capitulating privately. The casual pass is usually done when the bidder is unsure what the target's response will be. Of course, it may backfire as it does give advance warning to the target that a hostile bid may be forthcoming (see box below about the offer for Time Warner Cable), thus giving more time to the target to hire a defense team and possibly even enough time to erect new defenses. There are three other major disadvantages to the casual pass:

• The target may be required to disclose such discussions when they have reached a certain point (and in some instances, even when an unsolicited approach has been made).
• It may start the clock ticking on regulations regarding the timing of offers to remain open, sending documents to shareholders, and so on.
• Advisors also often tell the management of the target not to enter into any “casual pass” discussions with the bidder under any circumstances, i.e., no contact should be accepted unless there is an offer on the table. Thus, a casual pass may not provide any new information to the bidder and could result in the bidder therefore misinterpreting the target's actual intentions. Of course, the correct level of intelligence should already have provided sufficient data.

The casual pass is primarily made to “feel” the mood of the target, which is best done face to face. This used to be done by “pretexting” (which, after the Hewlett-Packard case referred to in Chapter 2, has now been ruled illegal).

Bear Hugs

“Bear hugs” are situations in which the bidder brings a very attractive offer directly to the target company's board of directors, with the expectation that it will be difficult for the directors to reject the bid prior to it being put to a vote of the public shareholders. The bear hug appears friendly, but carries the real threat that a hostile bid will be forthcoming if the directors do not accept the bid (hence the name: a hug from a bear may seem warm, fuzzy, and friendly, but if the bear chooses to squeeze harder and then eat you, it can). In practice, the definition of “very attractive” is interpreted to be a bid that is higher than the normal average premium range of 20–40%. Thus, Microsoft's offer in 2008 of 62% over Yahoo's prior-day share price was a bear hug bid for example.

The bear hug is designed to take advantage of the legal duty of directors to consider carefully and diligently any offer that they receive. However, they do not have a legal duty to sell the corporation, so they do not have to succumb to the bear hug offer if they feel that it is inadequate or they believe that they have a viable alternative (including continuing the current strategy as an independent company).

Bear hugs were popular in the mid- to late 1990s, when several large deals used the technique (for example, the large telecommunications and technology merger of 1999 between Vodafone and Mannesmann), and then became common again during the sixth merger wave.

Tender Offers

Tender offers are the most common tactic used in hostile takeovers. In a tender offer, the bidder directly approaches the shareholders of the target and offers to buy their shares at a specified price (in which case the shareholders would “tender” their shares to the bidder). The terms of the offer specify a time limit within which the shareholders need to tender their shares and whether the offer is for cash or securities, which depends on a variety of factors including time (cash is faster), availability in cross-border deals (share deals may not be possible or practical in a cross-border transaction where the target shareholders may not want to own foreign securities), tax issues, regulations, and so on. There can be other components of the offer as well, such as the special ten pence per share dividend in Kraft's offer to Cadbury shareholders in 2010.

What constitutes a tender offer? In the UK, after acquiring 30% of a company's stock, a bidder must make an offer for all of the remaining shares at the highest price it paid to acquire its stock position within the prior three months or higher. This renders partial bids and two-tiered offers (see below) impracticable. That 30% level is known as the “Mandatory Offer Level” and, as with other regulations, may differ by country (see Table 9.1).

The success rate of tender offers for publicly traded companies is very high (83.4% according to Mergerstat Review) and, when uncontested, even higher (91.6%). The contested success rate is 52.4%. Why is the success rate so high? Because shareholders are often quite happy to tender their shares in order to benefit from the financial windfall arising from the offer price being higher than the recent share price (due to the control premium which we saw in an earlier chapter averages at around 20–40%).

A tactic that was used during some of the earlier merger waves was the two-tiered tender offer (also called a front-end loaded offer). This is when shareholders who tender their stock quickly in response to an offer receive a higher price than shareholders who delay. However, in the 1980s and 1990s, most courts found them to be illegal as they are coercive and treat shareholders differently; the “best price rule” renders the tactic unworkable, as the “fair price provisions” do in the laws of many countries and which are written into many company charters.

By their very nature, tender offers are considered hostile. They are more expensive than a friendly deal because of the time they take to complete and because the tender offer team can be very large – investment bankers, legal advisors, accountants, depository banks, forwarding agents, public relations firms, and so on. Therefore a tender offer should be used only when a friendly approach is not viable.

Proxy Fights

Another tactic for taking over a resistant company is to mount a proxy fight. There are two types of proxy fight: contests for seats on the board of directors (possibly including an insurgent group trying to replace management) and contests about management proposals such as mergers, acquisitions, or anti-takeover amendments. These can certainly take place at the same time for the same M&A deal as a bidder may seek to pack the board with friendly directors prior to launching a formal bid for the company. Proxy fights can be the precursor to a tender offer or they may make a tender offer unnecessary as the target board may then capitulate and agree to be taken over.

There are a number of characteristics of a target company that increase the likelihood of a proxy fight being successful:

• Management has insufficient voting support (in situations where management does not hold many votes, such as the Forte case described in Chapter 6, where the Forte family controlled only 8% of outstanding shares at the time that Granada launched its hostile bid).
• Poor operating performance (the worse the operating performance, the more likely that shareholders are unhappy with management).
• Sound alternative operating plan (insurgents must have a good plan to improve shareholder returns and, if such a plan appears to shareholders as likely to provide a better return, then management is disadvantaged).

Since it is critical in a hostile takeover to get the support of at least 50% or ideally as many shareholders as possible, it is necessary to use business intelligence to understand the motivations of each major shareholder or group of shareholders. What an acquiring company's intelligence function would seek to ascertain is:

• Insurgents and groups who are unfriendly to management (but presumably friendly to a bidder with a better plan for the company).
• Directors, officers, and employees who own stock (including retirement plans) and are likely to vote against the insurgents.
• Brokerage firms: shares are often held “in street name,” which means that the stock owners have instructed their brokers to retain their shares and keep them in the name of the broker; these can often be very large blocks of shares although composed of many individual shareholders. Stock held in street name can in aggregate represent the majority of shares.
• Institutional shareholdings (pension funds, mutual funds, and so on); the most intense lobbying typically takes place with these influential shareholders as they are likely to hold large blocks of shares.
• Arbitrageurs, as they are sensitive only to the price of the offer (including its structure) and how quickly it can be completed.
• Individual shareholders, who are more difficult to contact and unpredictable in terms of response.

Some of this information can be gathered using open source electronic intelligence gathering techniques (“elint”) but most would need to be gathered by human beings (“humint”). This is at the individual company's discretion because some of these methods may involve subterfuge and deception and therefore lie in a gray ethical and legal zone.

There are also activist investors who agitate for change in a company, often telling it that the way for it to achieve the highest value for shareholders is to sell. These activist investors rose to prominence in the late 1980s through deals such as the battle for RJR Nabisco. Henry Kravis, one of the founders of KKR, the private equity group which acquired RJR Nabisco, was quoted in the Financial Times as saying that “Boards of directors did not hold management accountable. Management wasn't focused on inefficiencies and improving balance sheets.” One way to make sure that management does pay attention to company performance and not just its own interests is to have the threat of a takeover. These activist investors will often act to find a buyer, although even the threat of an acquisition may serve to force management into action. However, don't forget about the use of poison pills by companies in the US to defend against these activist investors, as discussed in Chapter 6.

Three-way suitors became increasingly common in the 1990s. This is when two companies agree to merge or one company makes a bid for another, and then a third company comes on the scene and makes a bid for the target or even for both companies. For example, in 1999, two copper companies, Asarco Inc. and Cyprus Amax Minerals, agreed to merge on a friendly basis as each felt that a combined company would be a stronger competitor in an increasingly consolidating market. Phelps Dodge, one of the world's largest mining companies, then came on the scene and made a bid for both companies. This is yet another example of the dangers of companies entering into M&A situations even on a friendly basis; once they have started the process, it is difficult to control the outcome. More recently, these types of deal have become less common.

Freeze-Outs

Minority shareholders are required to sell their shares to the bidder once a deal is approved by the requisite majority or supermajority of the shareholders. This is called a “freeze-out” (or, less commonly, a “squeeze-out”) as it prevents the minority shareholders from exercising their minority voting rights and forces the dissident shareholders to sell their shares at the same price as the other shareholders have accepted. Regulators and courts have designed this to prevent hold-out problems, whereby a small group of shareholders prevents a deal from being consummated when the majority of the shareholders have already approved the deal. In most countries, this level is set by the regulators at 5 or 10% – that is, if 90 or 95% of the shareholders have approved the deal, the remaining shareholders must also sell. But as with other regulations, this level differs by country: for example, in Switzerland, the freeze-out level is 98%.

In a freeze-out situation, if minority shareholders disagree on the value or treatment which they have received, they can then initiate shareholder appraisal rights to get the difference between the value they contend and the value they have received. In order to do this, they have to follow certain procedures exactly, which include raising the issue in the courts. If a suit is filed, the court may also appoint an independent appraiser. This is likely to be a time-consuming and expensive process, and the outcome is certainly not foreordained.

Fairness Opinions

To avoid this potential problem, most bidders include in their bid a fairness opinion (or “fair value opinion”) on the value of the company being acquired, issued by an expert. Such valuations are often conducted by investment bankers or accounting firms, and there are specialist companies that can do this as well. This has the potential to create a conflict of interest as the investment banks may have a stake in the success of the deal (bankers are often paid more for deals when the deal is successful, as we saw in Chapter 4). Also, the fees paid to some advisors (at least including the investment banks) are the same amount whether the deal closes in three weeks or nine months, so the motivation for the advisory bankers is to close the deal quickly once it is under way. This conflict of interest is not totally avoidable, but to prevent it from being a problem, a firm may also hire a valuation firm that does not play any other role in the deal process. Likewise, the non-executive directors of the target or bidding company may choose as well to have an independent valuation done.

Negotiation Process

Negotiation is communication and decision making between two parties that have different interests and/or agendas. In a merger, this clearly relates to a situation in which two firms are negotiating their very existence; in an acquisition, one party is doing so.

There are as many negotiating styles as there are negotiators (and perhaps even more as most good negotiators have developed skills in several ways of negotiating, changing their methods to suit the particular situation). However, in almost any negotiation, it is recommended that at least the following points be considered as part of the process:

• Clarify the starting point;
• Identify the resistance points;
• Find the “agreement zone”;
• Determine the best possible solution(s) for both parties.

Several factors in the process can significantly affect the result:

• Involvement of specialists and analysts with independent goals (such as advisors who are paid for the success of the deal, as discussed in Chapter 4). Investment bankers and other advisors may be motivated to close quickly (and conversely, some of the advisors who may want the deal to take longer to close as their fees are time-based).
• The need for secrecy; limiting the number of people who can participate as, once the deal is public, the price will likely increase due to the acquisition premium; another bidder may also then enter the negotiations, pushing up the price.
• The requirement for a substantial and uninterrupted time commitment, especially by the most senior managers in the company.
• Increasing momentum to close the deal, from both public and internal pressure groups.
• Managers who see that closing the deal will be a promotion and compensation stepping-stone forward and who, therefore, lose their objectivity.
• Inability to resolve important areas of ambiguity before closing – or the deliberate postponement of these issues to a later point.

There are many ways to improve the negotiation process. Each company should focus throughout the process on the end result – not the deal closing – while being clear about key objectives and remaining flexible on non-essential issues (although recognizing that each side may disagree on what is key and what is non-essential). One way to avoid some of the potential pitfalls is to create two teams – one that supports the deal and one that opposes it – to ensure that the acquisition itself is challenged internally. In intelligence work, these opposing teams are often designated the “blue team” and the “red team,” where the red team is developing non-traditional alternatives. These two teams should each include specialists/experts and operating managers but, no matter who participates, it is important to understand the motivations of each of the team members. Additional value can be provided by a more embedded intelligence function with shadow teams operating on a permanent basis. Lastly, the management and board of the bidder should be willing to walk away from a deal if major issues remain unresolved. They need to resist the temptation to let the momentum move a bad or questionable deal to closing.

Hard vs. Soft Negotiations

There are two basic negotiation styles. The first is called “soft,” and is typical of situations where the two (or more) parties are acting as partners (as with a merger or a friendly acquisition). The aim is to reach agreement, with both parties being flexible, willing to make offers, avoiding confrontation, and basing their negotiations on trust. The other style is “hard,” and is characteristic of situations where the negotiating parties are enemies or have conflicting agendas or goals. Here, the aim of each party is to win, often at any cost. Each party distrusts the other and engages in trench warfare, including the possible use of threats; one party will ultimately lose.

For those knowingly entering a hostile bid situation (using the “hard” negotiating style), a number of different tactics have been used in the past: deliberately misguiding (introducing ambiguity in facts, implying false goals and interests, and misleading through the decision process and decision authority), psychological warfare (for instance, creating stress, making personal attacks, “throwing mud,” playing “good cop/bad cop,” and playing “chicken”), and finally, deliberately pressurizing the situation (refusing to negotiate, taking extreme starting positions, reopening already closed positions, burning bridges, being late on purpose, being impersonal, and providing “take it or leave it” offers). Even for those who find such tactics unethical or immoral, it is important to know that there may be others on the opposing side who feel otherwise and who therefore may use them.

Resistance Strategies

To combat these “hard” lines of attack, there are five strategies that have been found to be particularly effective:

• “Take a deep breath and count to ten …” because the natural reaction is to fight back, so pause; be careful not to become part of the problem.
• “Walk in their shoes.” Look at the problem from the other side's perspective while trying to listen actively to and show respect for the other party's views; agree when possible.
• “Change the game” by asking problem-solving questions such as “why?,” “why not?,” and “what if?”; don't reject without careful consideration.
• “Build bridges” Don't burn them by, among other things, issuing threats; look for the win/win result and work towards that result slowly and step by step; uncover the other side's requirements and incorporate those into the result.
• “Learn judo philosophy” by recognizing and neutralizing negative negotiation tactics on the other side; don't force the other side to surrender; point out the consequences of not reaching an agreement and look for viable alternatives.

Note that all of these strategies can also be used in friendly transactions as well to expedite the ultimate result.

Signaling

One theme that flows throughout all of the discussion about negotiation above, and which we saw in Chapter 2 on business intelligence, is the importance of signaling. This is the messaging that is contained in any communication, whether written, verbal, or otherwise (such as the medium chosen to communicate the messages: in-person, by letter, electronically, in a press statement, etc.). Such signaling may be very subtle, and the advisors to the deal will suggest how the other side may interpret any particular phrase. Thus, an unsolicited offer which is rejected may contain wording, as was the case when Cadbury responded to Kraft's unwelcome first bid, which indicates that they are willing to talk, and even to consider a bid, but only if at a higher price. Alternative wording could have rejected any bid outright or “signaled” that other terms of the offer would need to be changed as well.

In this regard, precise writing is essential in M&A. This is necessary because the bidder and target alike will need to communicate with all of the stakeholders, including the other board of directors, the managements of both companies, other employees, investors, clients, suppliers, and community leaders. This communication will need to be precise so that the messages are not misunderstood. The language used – and the accuracy of wording, including subtle nuances of anything written or said – will be critical. Each statement will be carefully analyzed by the other party for very subtle signals: how negative or positive is a response to an offer, for example as with Cadbury above, or whether the other side is indicating with what they say or write, and how they say it, that they would like to receive a certain response in return.

Lastly, precision in writing should be reflected in the quality of the overall analysis and presentation. If there are mistakes in language, many readers or listeners will assume that the author or speaker has been sloppy with their strategic and financial analysis as well.

Conclusion

The topic of effective negotiation could be a book in itself; indeed, there is a plethora of such books. One of the better ones is Eric Evans' Mastering Negotiation. Evans provides the following checklist:

• Identify the balance of power.
• Empathize with the other player.
• Identify your genuine interests rather than your negotiating position.
• Identify any common ground.
• Is a long-term relationship important to you? If so, don't win too heavily.
• Is there a radical solution you could propose?
• Have you considered the mechanics of the negotiation, such as venue, seating arrangements, attendees, time, temperature?
• Rehearse.

To this list could be added some other summary recommendations:

• Never start with your best offer.
• Don't negotiate against yourself – if the other side has not responded to an offer, don't lower (or raise) your offer unilaterally.
• Don't change your offer in small steps or too frequently.
• Be alert and read all the signs (body language, voice inflections, pauses, and timing), including the tendency to rely too much on one single source or piece of information.
• Document all steps taken so that they can be justified later.

Finally, never forget the mantra from the play and later movie, Glengarry Glen Ross – ABC: Always Be Closing. Time wasted on an unsuccessful bid limits the time available for winnable bids.

In many deals (the unsuccessful ones!), the process and negotiation focus almost exclusively on strategic fit, personnel (especially senior management), and financial issues – and not post-deal integration issues. However, as we will see in the next chapter, the success of the deal is ultimately determined more by the post-deal integration process than any other factor and therefore the negotiations should also provide adequate focus on the post-deal issues.