Rio Copa: A negotiation simulation
Confidential instructions for H. P. Costa, President, Rio Copa Foods
You are playing the role of H.P. Costa, who is the president and majority stockholder of Rio Copa
Foods, located in the beautiful Latin American country of Santa Cruz. Rio Copa Foods is a closely
held, private company that has been in the influential Costa family for generations. The firm
produces, processes, and distributes packaged spices, sauces, and seasoning. Many Costa family
members occupy important management positions in the organization.
Recently, CPC International has identified Rio Copa Foods as a potential acquisition target, and
you have been negotiating the sale for several months. Rio Copa is important to CPC for two
primary reasons. First, this acquisition would provide CPC with a critical foothold in the Santa Cruz
market (CPC is currently not represented in the Santa Cruz market). Second, Rio Copa Foods
seems to provide a good fit with CPC's other strategic objectives.
Today you will be negotiating with P.J. Green, who is Vice-President of Business Development for
CPC's regional Consumer Foods Division. Many of the important issues have been resolved
already. Your job is to reach agreement on the remaining issues described below, getting the best
possible terms for yourself and your family.
Issues
The four issues for the negotiation are described below.
Financing Terms
One of the unresolved issues concerns the payment terms. CPC's computerized valuation model
and their perception of the overall desirability of your company suggests that 30 million dollars is
an appropriate price for Rio Copa Foods, pending a more detailed due diligence investigation. You,
as the negotiating representative of the Costa Family, have accepted this price, but there is some
conflict over the payment terms. CPC seems eager to drag the payments out over time, but you
are facing severe financial pressure from your other businesses and would like to get as much of
the money up front as possible. CPC and Rio Copa Foods have agreed in principle to a two tiered
payment structure, with a large lump sum up front and a percentage to be paid out gradually over a
few years. As described in the following payoff table, your goal is to convince P.J. Green to pay all
$30 million up front, with nothing spread out over time.
Non-Compete Period
Another important issue that remains unresolved is what role you will play after the acquisition. The
Costa family exerts enormous influence over most aspects of business and politics in Santa Cruz,
and you will have many interesting business opportunities after selling Rio Copa Foods. You are
eager to stay active in the food processing industry and do not want to be constrained by a
contract which prevents you from competing directly with or consulting for future competitors of
CPC. You prefer to give them the shortest grace period that is possible.
Written by Professor Robert Bontempo, Columbia University. Not to be used without the author’s permission.
Family Employees
A very important issue concerns the role other members of the Costa family will play in the future
management of Rio Copa Foods. Currently, ten extended family members occupy influential
management positions in Rio Copa Foods, and you are proud that your family has built this
company from a small fruit stand your grandfather ran as a teenager. Many of your relatives started
at the bottom and worked hard to earn the respect of their colleagues. Even though you are selling
the company, you hope that the Costa name will play an important part in the future of Rio Copa
Foods. Your goal is to get P.J. Green to assure you that Rio Copa will continue to employ all ten
family member managers for at least one year. Failure to do so might cause you to lose face.
Contingent Liability
Finally, there is the important question of contingent liability for worker's health. Several years ago,
Rio Copa Foods exposed some of its food processing plant workers to some chemicals that have
now been shown to be carcinogenic. The government has yet to rule on what the legal
responsibility will be, and it may be years before a decision is made. You are secretly planning on
a political career in Santa Cruz, however, and cannot afford to be seen as though you are
abandoning your workers. To avoid a public relations disaster that would limit your candidacy for
elected office, you have to try to retain the legal liability for the workers’ health. Several different
arrangements for sharing the social costs with CPC have been discussed, but your goal is to get
P.J. Green to give you 100% of the legal and financial responsibility for this problem.
Summary
Remember, you are strapped for cash. You are highly motivated to reach a satisfactory agreement
with P.J. Green, but your main goal is to negotiate the best possible agreement for you and your
family based on the information in the payoff tables on the next page. The numbers in the payoff
tables show how valuable each outcome is to you. You can trust that the payoffs assigned to the
different options in your table are accurate.
During the upcoming negotiation, remember the following:
•
Your total payoff is the sum of your payoffs on all 4 issues.
•
A valid agreement occurs only when all 4 issues are decided. Partial agreements result in a
total payoff to you of zero.
•
You are not allowed to accept any agreement that results in a payoff less than zero.
•
You are not allowed to deviate from or innovate with the payoffs listed on the payoff table.
In other words, you cannot change your payoffs.
•
No side payments are allowed. For example, you cannot give the other negotiator your own
money.
•
You may describe issues and elaborate on them as you see fit. However, you are not
allowed to invent additional issues.
•
YOU MUST NEVER SHOW THE OTHER PERSON YOUR PAYOFF TABLE. Even after
the agreement has been completed, do not show the other person your payoff table.
Written by Professor Robert Bontempo, Columbia University. Not to be used without the author’s permission.
Payoff tables for H. P. Costa: CONFIDENTIAL
Your payoff values are noted below. Adopt these values as your preferences while negotiating.
Financing
Payoff
Non-compete Period
Payoff
$20 million now
0
$21 million now
100
9 years
150
$22 million now
200
8 years
300
$23 million now
300
7 years
450
$24 million now
400
6 years
600
$25 million now
500
5 years
750
$26 million now
600
4 years
900
$27 million now
700
3 years
1,050
$28 million now
800
2 years
1,200
$29 million now
900
1 years
1,350
$30 million now
1,000
0 years
1,500
Family Employees
0 employees
Payoff
0
10 years
Contingent Liability
0
Payoff
0 percent
0
1 employee
250
10 percent
50
2 employees
500
20 percent
100
3 employees
750
30 percent
150
4 employees
1,000
40 percent
200
5 employees
1,250
50 percent
250
6 employees
1,500
60 percent
300
7 employees
1,750
70 percent
350
8 employees
2,000
80 percent
400
9 employees
2,250
90 percent
450
10 employees
2,500
100 percent
500
Remember: do not show your payoff tables to your partner or discuss your payoff amounts.
Written by Professor Robert Bontempo, Columbia University. Not to be used without the author’s permission.