. Using the case and the supplementary data in Appendices 1 and 2, how do you see FVC’s situation? What are the strengths and weaknesses of FVC and RSE? Why should the two companies want to negotiate?
2. What is FVC worth? What are the key value drivers?
3. What opening price do you think Flinder should offer to sell the company to RSE? At what price should he walk away from the negotiation? How did you estimate those values?
4. Do you recommend that RSE pays in cash or stock? If stock, what exchange ratio do you recommend?
• Sensitivity analysis: Here, one identifies the key value drivers of a firm and determines the variation in value as the drivers vary. One must take care to do this sensibly because quickly generating a blizzard of numbers is easy.
• Scenario analysis: This analysis is similar to the sensitivity analysis, but acknowledges that many assumptions will tend to vary together. In this approach, one estimates values of a company associated with different views of the future. These scenarios could simply be based on a general sense of how things will turn out (i.e., optimistic, pessimistic, etc.) or could be tied to specific events that have a competitive foundation (e.g., a major foreign competitor enters your domestic market) or a political/economic foundation (e.g., Britain endures a long recession). Here also one must take care to do the analysis sensibly because as the saying goes, “garbage in, garbage out.” Also, almost any scenario may be framed in such a way as to produce the results that one wants.
• Break-even analysis: At the least, knowing what assumptions are necessary to produce a target value will be extremely useful. This approach explicitly solves the valuation in reverse and leaves it to the decision maker to judge whether the break-even assumptions are reasonable.
The lessons of most studies of financial negotiation include the following:
• Know thyself. Know thy counterparty. Risk aversion, optimism (or pessimism) about the future, the desire to settle, and an expectation of settling are influential on bargaining outcomes.
• Do not abandon sound quantitative analysis. Do your homework before negotiating. Estimate bargaining ranges; set walk-away prices.
• Be disciplined in negotiating. Stick to predetermined walk-away prices unless you have significant new information or other sound reasons for abandoning them.
• Mastery of negotiating tactics pays. Anchoring or framing the other party’s expectations, the number of proposals, the pattern of concessions, the use of time, the use of interruptions—all these affect outcomes.
• Negotiate based on several attributes, such as price and terms, rather than one. One-attribute negotiation often leads to deadlock.
. Using the case and the supplementary data in Appendices 1 and 2, how do you see FVC’s situation? What are the strengths and weaknesses of FVC and RSE? Why should the two companies want to negotiate?
2. What is FVC worth? What are the key value drivers?
3. What opening price do you think Flinder should offer to sell the company to RSE? At what price should he walk away from the negotiation? How did you estimate those values?
4. Do you recommend that RSE pays in cash or stock? If stock, what exchange ratio do you recommend?
• Sensitivity analysis: Here, one identifies the key value drivers of a firm and determines the variation in value as the drivers vary. One must take care to do this sensibly because quickly generating a blizzard of numbers is easy.
• Scenario analysis: This analysis is similar to the sensitivity analysis, but acknowledges that many assumptions will tend to vary together. In this approach, one estimates values of a company associated with different views of the future. These scenarios could simply be based on a general sense of how things will turn out (i.e., optimistic, pessimistic, etc.) or could be tied to specific events that have a competitive foundation (e.g., a major foreign competitor enters your domestic market) or a political/economic foundation (e.g., Britain endures a long recession). Here also one must take care to do the analysis sensibly because as the saying goes, “garbage in, garbage out.” Also, almost any scenario may be framed in such a way as to produce the results that one wants.
• Break-even analysis: At the least, knowing what assumptions are necessary to produce a target value will be extremely useful. This approach explicitly solves the valuation in reverse and leaves it to the decision maker to judge whether the break-even assumptions are reasonable.
The lessons of most studies of financial negotiation include the following:
• Know thyself. Know thy counterparty. Risk aversion, optimism (or pessimism) about the future, the desire to settle, and an expectation of settling are influential on bargaining outcomes.
• Do not abandon sound quantitative analysis. Do your homework before negotiating. Estimate bargaining ranges; set walk-away prices.
• Be disciplined in negotiating. Stick to predetermined walk-away prices unless you have significant new information or other sound reasons for abandoning them.
• Mastery of negotiating tactics pays. Anchoring or framing the other party’s expectations, the number of proposals, the pattern of concessions, the use of time, the use of interruptions—all these affect outcomes.
• Negotiate based on several attributes, such as price and terms, rather than one. One-attribute negotiation often leads to deadlock.
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