Rio Copa: A negotiation simulation
Confidential instructions for P.J. Green, V. P., CPC International
You are playing the role of P.J. Green, who is Vice-President of Business Development for one of
CPC International's Consumer Foods Divisions. You have identified a potential acquisition in the
country of Santa Cruz and have been negotiating the acquisition for several months. The potential
acquisition, Rio Copa Foods, is a company that produces, processes, and distributes packaged
spices, sauces, and seasoning. It is potentially 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.
Rio Copa Foods is a closely held, private company that has been in the influential Costa family for
generations. Many family members occupy important management positions in the company. Your
team has been negotiating with the Costa family for several months regarding the sale of Rio Copa
Foods. Today you will be negotiating with H.P. Costa, the family patron and major stockholder.
Most of the important issues have been resolved. Your job is to reach agreement on the remaining
issues described below, getting the best possible terms for CPC.
Issues
The four issues for the negotiation are described below.
Financing Terms
One of the most important unresolved issues concerns the payment terms. CPC's computerized
valuation model and their perception of the overall desirability of this acquisition suggests that 30
million U.S. dollars is an appropriate price for Rio Copa Foods, pending a more detailed due
diligence investigation. The Costa Family has accepted this price, but there is some conflict over
the payment terms. H.P. Costa seems eager to receive the entire sum of money quickly, but CPC's
head accountant has explained that there are important tax and legal advantages to a staggered
payment schedule. 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 H.P. Costa to accept $20
million up front, with $10 million spread out over the next two years.
Non-Compete Period
Another important issue that remains unresolved is the role H.P. Costa will play after the
acquisition. The Costa family exerts enormous influence over most aspects of business and politics
in Santa Cruz, and their goodwill will be critical during the post-acquisition integration. One of your
concerns is that H.P. Costa may enter into a competitive arrangement or consult for one of Rio
Copa's competitors. You are eager to lock H.P. Costa into a non-compete/non-consult contract for
as long as possible. Ideally, you would like to sign a contract preventing him from competing
directly against you for ten years.
Written by Professor Robert Bontempo, Columbia University. Not to be used without the author’s permission.
Family Employees
Another issue concerns the role other members of the Costa family will play in the future
management of the company. Currently, ten extended family members occupy influential
management positions in Rio Copa Foods, and you are concerned that they owe their jobs more to
the patron system than to their competence. Their parochial views may inhibit the ability of CPC to
fully leverage the potential synergies of the acquisition. Your goal is to get H.P. Costa to agree to
the replacement of all ten family members at the time of purchase.
Contingent Liability
Finally, there is the question of contingent liability for the worker's health. Several years ago, Rio
Copa Foods exposed many workers in its food processing plant to some chemicals that have now
been shown to be carcinogenic. The government has yet to rule on what the legal responsibility will
be, but CPC is eager to avoid any responsibility for this whatsoever. Several different
arrangements for sharing the social costs with the current owners have been discussed. You prefer
to convince H. P. Costa to accept 100% of the legal and financial responsibility for this problem.
Summary
Remember that the successful conclusion of this negotiation has important strategic implications
for CPC's presence in Santa Cruz. You are highly motivated to reach a satisfactory agreement with
H.P. Costa, but your main goal is to negotiate the best possible agreement for CPC 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 P. J. Green: CONFIDENTIAL
Your payoff values are noted below. Adopt these values as your preferences while negotiating.
Financing
Payoff
Non-compete Period
Payoff
$20 million now
2,500
10 years
1,500
$21 million now
2,250
9 years
1,350
$22 million now
2,000
8 years
1,200
$23 million now
1,750
7 years
1,050
$24 million now
1,500
6 years
900
$25 million now
1,250
5 years
750
$26 million now
1,000
4 years
600
$27 million now
750
3 years
450
$28 million now
500
2 years
300
$29 million now
250
1 years
150
0
0 years
0
$30 million now
Family Employees
0 employees
Payoff
1,000
Contingent Liability
Payoff
0 percent
0
1 employee
900
10 percent
50
2 employees
800
20 percent
100
3 employees
700
30 percent
150
4 employees
600
40 percent
200
5 employees
500
50 percent
250
6 employees
400
60 percent
300
7 employees
300
70 percent
350
8 employees
200
80 percent
400
9 employees
100
90 percent
450
100 percent
500
10 employees
0
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.