Vacationspot.com and Rent a Holiday Negotiating a Trans Atlantic Merger of Start UPS

VACATIONSPOT.COM AND RENT-A-HOLIDAY: NEGOTIATING a TRANS-ATLANTIC MERGER OF START-UPS IN THE NEW ECONOMY Whenever two companies merge, there are a multitude of issues involved. First, there are financial issues, i.e., will the deal be all cash, cash and loans, or cash and stock, etc. Next, there are personnel issues, i.e., who will be in charge of the new company, will all employees be retained after the merger, etc. Lastly, there are intangible issues, i.e., synergies involved with the merger, future prospects for success, etc.

This paper analyzes and examines the various issues related to the merger of Vacationspot.com and Rent-A-Holiday. Part II outlines the merger discussions between Vacationspot.com and Rent-A-Holiday. In Part III, the next course of action is reviewed. Lastly, this paper concludes with recommendations for the successful formulation and execution of the proposed merger. MERGER DISCUSSIONS BETWEEN VACATIONSPOT.COM AND RENT-A-HOLIDAY Vacationspot and Rent-A-Holiday focused on the independent leisure lodging segment of the travel market, i.e., villas and bed and breakfasts.

The companies were aware of each other's existence for about one year before entering into formal merger negotiations in April 1999. In March 1998, Coopieters emailed Murch to discuss link exchanges as well as a joint venture between the two companies to share property listings and revenues. Murch initially rejected Coopieters' offer based on the high failure rate of joint ventures in high technology companies. However, after completing the survey of the site and discovering the company was weak in Europe, Murch decided to contact Coopieters.

In order to facilitate merger negotiations, Coopieters and Dhanani flew to Seattle to meet with Murch and Slyngstad. After determining that both companies shared the same long-term vision and strategy, the issue of valuation was raised. Since both companies had recently closed a round of financing, Slyngstad suggested that the valuation from the round be used to determine the valuation of the merger. Utilizing this formula, Slyngstad initially proposed that Vacationspot merge with Rent-A-Holiday at a 9-to-1 ratio, subject to Coopieters and Ingelbrecht signing long-term employment contracts.

The Rent-A-Holiday team believed this offer was grossly inadequate and walked out of the negotiations. III. WHAT'S NEXT? As they reflected upon what happened, both sides were not sure what the next move should be. Should they be the ones to reinitiate contact or should they wait for the other party to make the first move? As they sat in the hotel lobby, Coppieters looked at the phone and said, "I think this is worth another try, but we are not going to make the first move.

They owe us." At the same time Murch looked at Slyngstad: "I really don't know whether this is a fundamental problem or just a cultural thing or smart tactics on their behalf. What do you think, Greg?" In order to ascertain whether there was a fundamental problem, cultural misunderstanding, or smart negotiating, several steps should be taken. First, one of the companies should and would have to contact the other in order to determine the status of negotiations.

Since Murch initiated the negotiations, he is a likely candidate to contact the other company. During this conversation, Murch may wish to consider explaining his position as well as questioning Coopieters in order to determine why the negotiations abruptly broke down. As is often the case with mergers, there appears to be disagreement over the initial offer based on financial and non-financial issues. However, as is often the case with mergers, this disagreement is most likely a misunderstanding that may be resolved by way of extensive, rational discussion.

Vacationspot believed its offers was merely a starting point in negotiations and was reasonable since both companies had recently completed a round of financing. In analyzing the situation, Slyngstad considered numerous possibilities. First, Slyngstad thought there may have been a cultural misunderstanding and that Coopieters may really feel that Slyngstad's offer low-balled the company. Next, Slyngstad considered that it may be a negotiating tactic to get the company to increase its offer.

Murch believed that there may have been a fundamental misunderstanding between the two parties and wanted to resolve the difference in order to strengthen Vacationspot's presence in Europe. Coopieters was disappointed by the offer due to its low valuation and wanted another measure to be used to determine the value of the company. In support of his position, Coopieters prepared a matrix that compared Vacationspot and Rent-A-Holiday according to several different operating and other statistics.

Vacationspot was somewhat more technologically advanced that Rent-A-Holiday and Vacationspot's property management tool (Avail) is probably superior to any other product out there and holds a significant amount of value. Likewise, Rent-A-Holiday's translation engine provides a great deal of value. Vacationspot had much better financing sources that could be beneficial in numerous ways, but primarily by eliminating much of the uncertainty potential European employees s have regarding joining a small company.

After one of the companies contacts the other in order to determine the status of negotiations, there needs to be in depth discussions concerning the differences of opinion regarding valuation as well as any other issues that may have influenced the decision. One of the primary issues, culturally or simply practically, is the fact that most likely if the merger were completed, the new company would be headquartered in Seattle. In addition to high.