THE SYNERTECH-DOSAGEN NEGOTIATION
Confidential Role for
Synertech
You are CFO of Synertech, a global pharmaceutical company with annual sales of $700 million
and significant cash reserves. You need to open a new plant to produce a line of genetically-
engineered compounds that are at the advanced stage of development and continue to show
great potential. A special plant is needed because of the peculiarities of manufacturing
geneticallyengineered compounds: you cannot modify one of your existing plants.
The total cost for building a new plant and bringing it into operation is $25 million, and if
everything were to go perfectly, it would take a year to bring into full operation complete with
FDA approval. You would like to be able to begin production in three months. You have
located a suitable site in a new industrial park ten miles from your other operations. You need
to commit to buying that site very soon, otherwise you might lose it.
In the meantime, you discovered that Dosagen, a smaller pharmaceutical company with sales of
$150 million, has a suitable plant for sale. You have learned through public record that the
CFO of Dosagen with whom you are meeting purchased this plant three years ago for $14
million during bankruptcy proceedings of Biotech, a diversified chemical company. A year after
Dosagen purchased the plant, it was appraised at $27 million. Since that time, the real estate
market has declined 20% due to the state of the economy. Nine months ago, a similar plant in a
neighboring town to the Dosagen plant sold for $13 million.
The location of the Dosagen plant is not great, it is 70 miles away from the headquarters
facilities where the research group is located, but Dosagen's plant is up and running and
already has FDA approval. It also has a high-quality, experienced work force, which might save
you the costs and time of forming your own.
You are about to meet with the CFO of Dosagen. You have full authority to buy the plant at any
price you deem acceptable. The transaction price must be in cash only and the deal will close
within 60 days. No other terms can be added.
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THE SYNERTECH-DOSAGEN NEGOTIATION
Synertech Representative
Prenegotiation Questions
The following questions are designed to help you plan for your first negotiation exercise.
Please write your name and group number in the spaces provided above and then complete
all questions below.
(1) If you were to make the first offer, what amount would you offer for the Dosagen plant?
It is important for me to make the first offer! I will likely offer $13 million at first to
anchor the negotiation.
(2) What is the highest amount that you are willing to pay for the Dosagen plant?
Highest amount willing to pay $25 million.
(3) What is your target price (or your goal) for acquiring the Dosagen plant?
My target price is $19 million.
(4) What do you think is the market value of the Dosagen plant?
Three years ago, the Dosagen plant was appraised at $27 million. Since that time, the real estate
market has declined 20% due to the state of the economy. Nine months ago, a similar plant in a
neighboring town to the Dosagen plant sold for $13 million. I believe that the market value is
around $20 million.
(5) If there is an agreement, what is your best prediction of the final negotiated price
for the Dosagen plant?
Even Though we know that Dosegan wants to sell the plant, I don’t think that they will
sell the property for less than the price they paid. They will not sell the property for less
than $14 million.
(6) If the Dosagen Representative were to make the first offer, what amount do you
think s/he would ask for the Dosagen plant?
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I believe that their first offer will be around $25 million.
(7) What do you think is the lowest amount the Dosagen Representative will accept
for the Dosagen plant?
2 yeast ago the plant was praise for $27 million, in those years the market was 20%, so the
current price of the property will be around $21million, but because they are looking to sell the
property and closest plant was sell for $13, I believe that the lowest amount that Dosagen
Representative will accept for the Dosagen plant is around $19 million.
(8) What do you think is the Dosagen Representative’s target price (or goal) for selling
the Dosagen plant?
2 yeast ago the plant was praised for $27 million, in those years the market was %20, so the
current price of the property will be around $21million. I don’t think that they will expect that
price but, I believe that they will target around $25 million.
(9) If there is an agreement, what do you think the Dosagen Representative’s best
prediction is of the final negotiated price for the Dosagen plant?
Between $20 and $22 million.
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The issues in the negotiation. Negotiating
Since I am the CFO of Synertech, a global pharmaceutical company, I am looking to
purchase a new plant to manufacture a line of genetically-engineered compounds that are
in the advanced stage of development.
Unfortunately, I cannot use a pre-existing plant of Synertech so I am negotiating to buy a
plant from Dosagen. The pro of purchasing the Dosagen plant is that it is up and running
and already has FDA approval. The Dosagen plant would also come with an experienced
workforce (if they could be retained). However, it is 70 miles away from Synertech HQ.
BATNA. Best alternative
My BATNA (Best alternative to a negotiated agreement) is building a new plant for $25
million. This is my BATNA because if I walk away from today’s negotiation with
Dosagen, then I would likely build the plant near a new industrial park ten miles from my
corporate headquarters where the research and development group is located. This would
take approximately 1 year if everything goes well. I would also have to get FDA
regulatory approval and have a workforce ready to go.
Reservation price.
$25 million. It is likely that my BATNA will cost more than $25 Million given the year
delay in production, start-up costs related to staffing up, and fees and costs related to
obtaining FDA approval (legal, etc.).
Target.
My target price is $19 million.Three years ago, the Dosagen plant was appraised at $27
million. Since that time, the real estate market has declined 20% due to the state of the
economy. Nine months ago, a similar plant in a neighboring town to the Dosagen plant
sold for $13 million. I believe that the market value is around $20 million.
Sources of power/leverage
I consider my source of power/leverage to be the fact that I represent Synertech a global
pharmaceutical company with annual sales of $700 million, and significant cash reserves.
I can offer CASH!
Weakness
I consider my weakness to be my BATNA. The fact that building a factory will take 1+
years and significantly more energy and resources. Plus, it costs $25 million.
Opponent's sources of power
My opponent’s source of power is that they have:
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1) a factory up and running
2) approved by the FDA
3) a trained workforce
I can neutralize their sources of power by emphasizing my other option’s strengths. The
fact that my BATNA would be brand new and very close in proximity (only 10 miles)
from my HQ.
Opponent’s sources of weakness,
My opponent’s weakness is that their plant is 70 miles away from my HQ. I can amplify
this weakness by emphasizing that I have another option 10 miles away.
My Plan:
What does everyone know?
● The dosagen plant is for sale.
● The plant sold for $14m 3 years ago (may not be a good indicator of value)
● 2 years ago, the plant was appraised for $27m (may not be a good indicator of
● Market value)
● Asimilar new plant sold for $13m 9 months ago
● The local workforce is experienced and mobile between companies
Opening move/initial strategy
My opening move is to determine Dosagen’s willingness to sell. Essentially, I am aiming
to dig deeper to see if they have a weakness.
It is important for me to make the first offer! Given that my target price is $19 million, I
will likely offer $13 million at first to anchor the negotiation.
Arguments to use to bolster my position
I will emphasize the argument that since the appraisal two years ago, the local real estate
market has declined 20%. I will also hone in on the fact that buying the Dosagen plant is
NOT convenient for my company given that it is 70 miles away from my HQ.
And also mentioned that a similar plan in neighboring town was sold for $13 million
Negotiation skills
The technique of “anchoring” and starting with a low anchor. The other technique I was
attempting to use was silence and being comfortable with silence.
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