Biopharm - Seltek Negotiation Case

The second role play was a pure distributive bargaining scenario, that aimed to depict the real-life on-shot negotiations in which price is the only issue negotiated. In situations like this, it no longer possible to create a win-win solution, as the win of one party will always be the loss of the other party. Hence, one should only be focused only on calming the value.

In the “BioPharm - Seltek” role play my team represented BioPharm,- the potential buyer seeking for a plant in U.S. to manufacture Depox and thus capitalise on the newly acquired license to produce and sell it in North America. The company had two options. The first option was to buy the plant from Seltek, a small pharmaceutical company, which would allow for the immediate start of production. The second option, and therefore our BATNA (Best Alternative To a Negotiated Agreement) was to build the plant at the cost of $25 million. However, if the price of the land and time value of money were included, the total cost added up to $37,5 million. Because no other issues were negotiated, the $37,5 million was our reservation point.

As the negotiations were of a unrepetitive nature, low possibility of future interaction and only price was an issue, only/just the pie slicing strategies worked. As we knew that the similar property in the neighbourhood was sold after being on the market for three year, we assumed that company might have problems with selling the property for an attractive price. Moreover, we knew the value of their insurance in case of total loss was $8 million, which was way below the fair value of the plant. Therefore, we decided that we had enough information to make the first offer of $ 8 million and set our target at $12 million. It was made at the lowest justifiable price that we could have found, which was the value of the insurance in case of a total loss. That enabled us to favourably anchor the negotiations. The other party made a counteroffer of $16 million, which they motivated as being the fair value of the property. Having said that, all offers made where supported by facts, which sometimes made them easier to accept and in consequence made the negotiation process smoother. On the other hand, by relying on facts too much, at one point we ended up arguing over valuation of the plant, instead of focusing on the concessions and reaching the deal. What could have been done better was setting more ambitious target. Even though the first offer made was $8 million, we did not truly consider it as our target. The target itself was less ambitiously set at $12 million. This, in combination with an unattractive BATNA made us settle for higher concessions later. Moreover, after the role play it was revealed that the other party BATNA was lower than our first offer. Although in that case it would not be reasonable make an offer that it less than $8 million, it underlines the importance of researching your counterparty BATNA in the real life, as it may be much weaker than you expect. Moreover, even though we decided to not to reveal our reservation point, it was not successful because by making a large concession we showed them that we have a lot of money to spend. On the other hand, the strategy that did not work was an attempt to unbundle other issues by asking questions about interest. The other group was not clear about their intentions and we proclaimed wrong signals. At some point, we thought that they will insist on selling the factory as a package deal with the patent, which made us make higher concessions regarding the price of the plant, so that to avoid buying the patent. Even though the strategy itself seems be highly effective in some cases, I would be careful when applying it. The other severe mistake we made in choosing the strategy was to not plan our concessions beforehand, which would give us more control over the process. Despite making those mistakes, we finally we settled for $13,6 million, which is a satisfying outcome as in comparison to other groups the deal we reached was the second best form the buyer’s perspective.

Another thigs to consider, would be the impact of our target, BATNA and first offers on the negotiation. As mentioned before our reservation point was based on the alternative to build the plant and equalled to $37 500. The other party reservation point was $7 000. Thus, there was positive bargaining zone between $7 000 and $37 500 and pie of $30 500 to was there to divide.

We made the first