Negotiations in Organizations Position Paper 1 Case Overview Capital Mortgage Insurance Corporation This case is set in the real

al estate industry of the late 1970s and describes an acquisition attempt by Capital Mortgage Insurance (CMI) to grow and diversify their holdings. CMI was created in Philadelphia to sell mortgage insurance, a relatively little known practice at the time. CMI identified the corporate relocation service industry as their first step to diversify, as it had strong potential to increase mortgage insurance sales in combination with established relationships with banks, realtors and related businesses. Corporate Transfer Services (CTS), a subsidiary of a large real estate firm in Chicago, had mutual connections to the MetroNet association of real estate brokers, for whom CTS was to develop a national network of corporate relocation services. Unfortunately, CTS had historically underperformed and is looking to sell an 80% interest for a substantial price above net worth ($5,000,000). CMI is wellcapitalized and primed to purchase CTS to develop relocation services in conjunction with MetroNet. CMI is willing to pay for a justifiable amount above net worth for 100% ownership. Negotiations Interests, Issues, Positions, and BATNA (CMI & CTS) CMIs main interests are to increase mortgage insurance sales and diversify into the corporate relocation business, which was growing at a 10-15% annual rate. To be successful, CMI would need to nurture its close relationship with MetroNet, with which Elliott Burr (CTS) has longstanding ties, and ensure that negotiations would not create a rift between the two organizations. CMIs initial offer for CTS was $820,000 ($400,000 above net worth) with a reservation price of $1,020,000. CMIs offer stipulated a 100% stake in CTS and that a key manager, Thomas Winder, would relocate to Philadelphia to run the business. Another key position included that the heads of CTS would agree to a non-compete agreement for two years. CMIs BATNA could either be to create its own relocation service from the ground up or look for alternative acquisitions. Building a relocation service from scratch is not desirable

since it would require CMI to create an operable company by July 12, only a few months away. An alternative acquisition is unlikely since CMI had already exhausted their search for other targets. For these reasons, it is in CMIs best interest to work toward a successful negotiation with CTS. CTS: The primary interest of CTS owners is to make as much money as possible from the sale of company. The owners are looking to exit the corporate relocation business since the company has been unsuccessful thus far. CTS initial price was $5 million for an 80% stake in the company with an unknown reservation price. The four owners Elliott Burr, William Lehman, Michael Kupchak, and Thomas Winder seek to maintain a minority stake and potentially reap the rewards of a growing business. CTS BATNA would be to try and turn the company around themselves or pursue a sale with a different buyer. Since previous attempts to improve performance have failed, and no other potential buyers are foreseeable, it is in CTS best interest to negotiate an agreement with CMI. Collaboration vs. Competition Our position is for CMI to pursue a collaborative negotiation strategy to acquire CTS. By doing so, Frank Randall and Jim Dolan (CMI) will preserve their relationship with Burr (CTS) and MetroNet. The major stockholders at CTS and CMI are prepared to collaborate because they freely exchange information and are receptive to each others goals.1 If either group adopted a competitive negotiation strategy, this would disguise true interests for each company and damage relationships upon which CMI is reliant. It is also important to consider the consequences of failing to reach an agreement.2 Given that neither CTS nor CMI has a strong BATNA, it is in the best interest of both parties to work out a solution that can result in a win-win strategy.

1 2

Roy Lewicki, Davis M. Saunders, and Bruce Barry, 19. Max H. Bazerman: Negotiating Rationally (New York: Free Press, 1992), 67.

Randall and Dolan (CMI) must understand the true interests of the individual CTS partners. CTS valuation of the firm seems to be derived from multiple sources. Dolan suspects that the more elusive owners (Lehman & Kupchak) are driving the extreme purchase price.3 This is evident in the demand of CTS partners, including a huge sum of money and continued stake in the company. The disjointed demand shows that some of the owners simply want to get out not likely to be Burr and Winder who are both active. Their demand for a residual 20% stake reveals that CTS owners understand the potential for growth in synergy with CMI. In a collaborative agreement, Lehman and Kupchak could be bought out, meeting their interest of cashing out now. Randall and Dolan could satisfy Burr and Winder with company shares and maintain relationships with CMI. Randalls primary concern for fair value of CTS could be satisfied, while simultaneously growing CMI and creating growth from vertical integration. CMI needs to have clear understanding of their goals as well. They see great potential for growth and increased revenue as a result of this relationship. They have no specific qualms with capital or stake in the company provided the demand is reasonable. In a competing negotiation, relationship damage will be extensive. First, CMI will lose Tom Winder, who they value as an experienced operations manager at CTS. More importantly, CMI cannot afford to miss out on a good relationship with Elliott Burr. In addition to being a MetroNet director and major investor in CTS, Randall believes that Burrs network is more important than the acquisition of CTS itself.4 Randalls belief undeniably states that the importance of outcomes pale in comparison to the importance of relationships, and further reinforce the need for a collaborative negotiation instead of a competing one.

3 4

Roy Lewicki, Davis M. Saunders, and Bruce Barry, 577. Roy Lewicki, Davis M. Saunders, and Bruce Barry, 580.

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