Texoil Negotiation Exercise

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Reflection Paper - Texoil

For the Texoil negotiation, I was in the role of the Service Station Owner. As such, my main objective was to sell the station and get the best possible agreement. My BATNA was $400,000, which represented an offer from British Petroleum and my resistance point was $413,000 after tax, which represented the cost of my trip. My target was $488,000, which included an additional $75,000 to help tie me over until I found a job upon my return. This resistance point represents a purely financial alternative. However, there were several other criteria or interests other than strictly financial which could have been satisfied through non-financial means. My underlying interest or reason for selling the station was to realize my life’s dream of sailing around the world. My wife and I were planning to take a two-year trip and needed the money to buy a sailing boat and cover our costs. Furthermore, I was concerned about having a job when I returned, and concerned with tax issues because of the capital gain on the sale. The final agreement included a purchase price of $210,000, covering $86,000 to get my boat ready, a Texoil gas card for a 25% discount worth $10,000 of my maintenance costs, a job at $85,000 for less hours upon my return, and a loan to cover the rest of my cashflow needs not payable for two years. Towards the end of the negotiation I was still concerned about the size of the loan I would still have outstanding. But since I would be making an additional $10,000/year for less hours and have about 13 years before retirement made this agreement very attractive. I was satisfied that I could pay off the loan with my increased salary or sell the boat upon my return. In this respect, although I did not achieve my target price in terms of cash, the agreement was worth $553,000 or $535,000 after-tax. This was well above my target of $488,000. Although the agreement did not meet my expected financial requirements, it more than satisfied my underlying interests.

In planning for the negotiation, my main objective was to focus on the concept of creating value for both parties by developing options for mutual gain, and to achieve this by focusing on interests rather than positions. My real interests were really cashflow needs and could have been satisfied with creative alternatives. So I developed several proposals that might get around simply the purchase price, yet might be mutually beneficial to both parties. These included seeking a job with Texoil upon my return, searching for if Texoil might have access to a sailboat, reducing the purchase price to avoid tax by treating a portion of the amount as a bonus, seeking a partnership and share revenues, and seeking a loan upfront to cover my cashflow needs.

From the beginning of the negotiation, it was clear that the other party valued our long-term relationship, which framed the negotiation so we could collaborate to meet the interests of both parties. The very beginning of the negotiation was spent probing one another for information. During this process, neither party was purely open at the very beginning, but there was a point in the negotiation where it became obvious we were working together to bridge the gap between price. At this point, there was a strong element of trust and more information was forthcoming. For example, it was clear that Texoil was interested in someone who could operate the station. This fit nicely with my job needs upon return, so we crafted the agreement to include future employment with reduced hours at $85,000. This made me more willing to accept a lower price. It also created the opportunity to explore more alternatives. Not all proposals were acceptable, but some were. For example, profit sharing was not acceptable, but a loan to cover my upfront cash needs was acceptable. This addressed my main interest of cashflow and would enable me to take my trip, even if I did not get the price I was...
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