While Cadbury was initially vulnerable resulting in this take over, Kraft had to borrow heavily to afford the final price of 850p per share. In the coming months and years, Kraft will have to balance against recovering the money put into this acquisition (Wiggins, 2010). A risk, many British politicians and citizens alike fear will mean the end of their signature chocolate in an effort by Kraft to increase their profit margin quickly.
Case Study 2: Discussion
The Kraft acquisition of Cadbury is a corporate negotiation making headlines across the world both for the magnitude of the deal and the incredible hostility which marked the negotiations prior to the final signing of the agreement. Cadbury wound up in a financially vulnerable position after several strategically bold maneuvers ultimately resulted in a poor stock showing for the newly de- merged Dr. Pepper Snapple drinks company, and the reliance of Cadbury on financing from institutions which were ultimately crippled by the credit crunch. It had become inevitable that Cadbury would either have to sell or merge to stay afloat given its poor performance in the recent past.
Irene Rosenfeld of Kraft employed a highly adversarial and aggressive negotiation strategy by taking her initial purchase offer which had been rejected to the press. She knew that the fiercely ethnocentric brand would be unlikely to sell to the food conglomerate, so rather than risk losing to a competitor such as Hershey, Rosenfeld upped the stakes and let the stakeholders decide.
In retrospect, Cadbury blames its large number of what they term "short-term" investors for ultimately having to agree to less than favorable terms with Kraft. However, Cadbury despite its status as a British national treasure was historically of little interest to more long-term investors. The company stock had an impressively poor showing in British investment.
Though Rosenfeld managed to acquire a lucrative already branded company, the way in which she acquired it may ultimately result in a negative corporate outcome for Kraft. The company had to borrow heavily to afford the 850p per share, and ultimately might not even be revenue neutral for the first year or so of integrated production. She has also been warned by both political stake holders and corporate alike that if the quality of Cadbury suffers as a result of the Kraft acquisition, there will be stiff consequences not just for Rosenfeld but also for Kraft.
Though her negotiation tactics were less negotiating and more strong-arming, the results ultimately turned in favor of the direct and persistent approach. However, the extremely unpleasant nature of the acquisition will make the transition into Kraft even more difficult. It is important even in the most highly charged of negotiations to remember that even if an individual or even an entire company is an adversary presently they will likely be a colleague tomorrow.
Case Study 3: Vodafone takes over Mannesmann
Mannesmann and Vodafone are both telecommunications giants. Though independent the two corporations have worked together in Europe for years, partnering successfully to bring service to millions of customers across Europe. The two companies jointly owned Germany's largest mobile phone service provider as well as Italy's second most popular firm. The trigger for Europe's largest corporate buyout (£112bn) was Mannesmann's acquisition of Orange which is the third largest UK service provider for (£36bn) ("Mannesmann seals deal"). Though the two giants had worked together successfully for several years, this corporate takeover was still hostile in nature. Mannesmann was not looking to sell, however the purchase of Orange left the giant somewhat vulnerable at which point Chris Gent of Vodafone presented his initial offer of a merger.
Officially now the corporations are merging, however more than half of the company will be owned by Vodafone while 49.5% of the new enlarged company will belong to Mannesmann (Watkins, 1999). However, the less than 50/50 split held up negotiations for several months. Initially Vodafone presented an offer which meant that Mannesmann shareholders would get only 47% of the merged company, Esser (chairman of Mannesmann) initially wanted to hold out for his shareholders to have 58.5% of the merged company (Watkins, 1999). Vodafone however being the acquiring agent was definitely not going to cede controlling share of the merged corporation to the asset they were acquiring. During the tense and at times hostile negotiations, the share price for Mannesmann spiked 119%, unfortunately though as the end of the 60 negotiation period drew to a close it was evident that Esser would have to negotiate the best terms of an acquisition which was inevitable ("Mannesmann seals deal")
. There was strong evidence that had the vote gone to the share holders they would have taken the deal even for a lower percent share in the new merged corporation.
Though the bid to acquire Mannesmann was initially a "friendly" offer, when Mannesmann turned the offer down immediately, Chris Gent of Vodafone began a campaign to acquire the German Telecom giant. Gent and Esser began campaigning throughout Europe and even the United States attempting to win the votes of shareholders either for or against the merger ("Mannesmann seals deal")
. This tet a tet which lasted three months ultimately has lead to a telecom multinational behemoth which boasts 31 million customers in Europe and 42 million customers in total. Though ultimately Esser acquiesced to the Vodafone bid, he will be staying on as a non-executive deputy chair of the new merged corporation. Chris Gent, for successfully acquiring the reluctant and eventually combatant Mannesmann and ultimately reducing cost by £500m reportedly without having to cut any jobs, will be the chairman of the new merged company heading the 41 million customer strong conglomerate ("Mannesmann seals deal")
Case Study 3: Discussion
This case study is an interesting example of the use of lobbying in a corporate negotiation context. This negotiation also undertaken for the purposes of value creation, was ultimately quite hostile. Both Vodafone and Mannesmann colluded on two highly successful companies and, were successful in their own right. This takeover was quite predatory in that Gent of Vodafone waited until Esser made Mannesmann slightly vulnerable by purchasing Orange, a UK-based telecoms company.
The impetus for this hostile takeover was the decision of Mannesmann to purchase a UK-based telecom giant such as Orange (3rd largest Uk network). Though the two companies had worked together in Germany as well as Italy, there was an unspoken agreement that Vodafone had dominance in the UK and Mannesmann had dominance in Europe, though both sought expansion to the American market.
Gent, skilled in corporate strategy and negotiation, initially presented the offer as an amicable merger. When Esser refused outright though, it became clear that refusal was not an option that Gent was willing to live with. Though there was a break down in direct negotiations at that point, not to resume until days before the bid would be put to a stakeholder vote, both chairmen began a rigorous campaign to entice stakeholders on both sides of the negotiation to vote either for the acquisition or against it. Effectively each chairman sought to shape the decision of the stakeholders by using their accumulated potential votes as bargaining chips in the ongoing negotiation.
Eventually though, despite huge spikes in both company's stock price per share (Mannesmann increasing 119% during the last days of negotiation) Esser knew that if put to a vote the stakeholders would take the existing fairly undesirable offer. Esser immediately reinitiated negotiations in the hopes of getting as close to equal share in the new enlarged company as possible. He succeeded with the deadline less than 72 hours away in securing 49.5% market share for his stockholders. A feat which Gent publicly praised.
This case study is an example of extremely creative negotiating tactics. Generally, in situations such as the one above, the politics of internal structure become the primary focus of the debate. However, both men realized that the ultimate decision would likely come down to a vote and as such needed as many votes as they could possibly secure. This innovative strategy ultimately resulted in an effective and profitable solution for both companies.
Case Study 4: J.P. Morgan Buys Bank One
The J.P. Morgan Chase Bank One merger is simply the strategic alliance of two similar banking entities. Both extremely strong in terms of assets, and market presence their merging is one which has been handled equitably and efficiently. The combination of the two banks each representing a large market share and diverse range of financial products will ultimately return greater profits for shareholders as well as reducing the relative cost of operation as well as the cost of their products.
An increase in per share dividends of up to $.45 per share is possible as a result of this merger. So too though is the loss of 10,000 jobs throughout the companies more than 2,000 branches world wide ("$58B bank deal set..")