The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions

CHAPTER 14

Negotiation Process, Bargaining Area, and Contingent Payments

WILLIAM A. GRIMM

Visiting Professor of Practice in Entrepreneurship and Negotiation, Rollins College

INTRODUCTION

This chapter examines the negotiation process that typically takes place in connection with mergers and acquisitions (M&As). For the purposes of this chapter, the acquiring party will be identified as the buyer and the selling, or merging party, as the seller. The negotiation process is conducted by many different players such as the executive officers in charge of the deal, investment bankers, corporate counsel, and boards of directors for both the buyer and seller.

To set the context of the first hypothetical transaction, assume the buyer is a large publicly held company and the seller is a small, publicly held company. Other assumptions include the following:

• Both companies are incorporated under Delaware law with headquarters in the United States and have substantial international operations.
• Both companies are listed on the Nasdaq Global Select Market.
• Both companies are widely owned with no shareholder owning more than 20 percent of the outstanding voting shares in each of them.
• The seller has not been seeking to be acquired before being approached by the buyer.
• The seller is not financially troubled or under pressure to be acquired.
• Both the buyer and the seller must obtain shareholder approval for this transaction if the buyer issues shares of common stock as the primary consideration ...