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International Merger Negotiation

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Journal for International Lodging Merger

Randy Sidelinger: VP of Acquisitions for Lambert Hotels

Jude Anderson Director of Finance for Lambert Hotels

Reflection:

The International Lodging Merger case is a cross-cultural negotiation involving Lambert Hotels, a U.S. chain of luxury hotels and AAA HotelCo a Brazilian chain of hotels. The negotiating issues involve stock ownership, voting seats, new company name, management of hotels, compensation for managers, the timing, and a separate sale of the Ecotourism Business.

Before the meeting we took about ten minutes to discuss our strategy. I had an informative list of factors that you should be aware of when negotiating Brazilians. Brazilians are a relationship-oriented culture. Jude and I discussed how they prefer to develop a relationship first, and will probably start off the negotiation with small talk. One common criticism Brazilians have of Americans is that they "leap right into business" before making the effort to build a personal relationship. They may also perceive Americans as arrogant. Brazilians prefer to discuss all aspects of the contract at once rather than point-by-point. The Brazilian business culture is intensely hierarchical; only the highest person in authority makes the final decision. Documents aren't signed immediately; a handshake and a person's word are considered sufficient. You will have to effectively use your personality, cultural awareness, and other interpersonal skill to win your Brazilian counterparts over to your side.

The negotiation started with small talk as expected. We introduced ourselves; my family name came last in the alphabet so I introduced myself as the VP of Acquisitions for Lambert Hotels. I introduced Jude as the Director of Finance. This turned out to be a mistake; the Brazilians didn't acknowledge Jude after this. I was asked about ten personal questions, which I cordially answered. After the questioning by the Brazilians, I asked some personal questions about them, trying to build on the relationship.

We now got down to business. I started off with the stock ownership. Since the two companies had already exchanged property appraisal information and operating figures, I believed that the difference in the appraised values of the two companies' respective holdings entitles us to approximately 73% ownership of the combined company. The Brazilians disagreed they believed they deserved a 60% stake in the company since their gross operating profit of 30% of gross room revenues was higher than ours. We tabled this issue, and went on to naming the new company. We said we would like Lambert to be in the name and suggested Lambert-AAA. They came back with AAA-Lambert, because AAA was first in the alphabet. We agreed immediately, since it was worth 40 points. The next issue was the management of AAA Hotel properties. We opened with Lambert providing 1 regional manager per 5 AAA properties, and train all AAA general managers for 1 month in the U.S. They countered with Lambert providing 2 regional representatives to AAA corporate offices, and train all AAA general managers for 1 month in the U.S. We accepted immediately since it was worth 60 points. We have now reached our BATNA.

In the opening small talk I asked the question about compensation to property managers. I wanted to know how their culture views pay contingent on performance. They said they believe that pay contingent on performance brings about competition between properties. They did not believe this was a good tactic to use. I knew we had resistance here so I opened with 21% to 49% of pay contingent on property performance. They countered with 10% to 20% of pay contingent on property performance. Jude and I discussed the offer and made the concession to accept it. This gave us 120 points and we are now above our BATNA.

The Brazilians brought up the Ecotourism Business. We asked if they saw risk in this type of business and they told us that it has been very profitable with no problems. We told them we were interested in purchasing

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