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Negotiations in Organizations – Position Paper 1 Case Overview – Capital Mortgage Insurance Corporation This case is set in the real

estate industry of the late 1970’s and describes an acquisition attempt by Capital Mortgage Insurance (CMI) to grow and diversify their holdings. CMI was created in Philadelphia to sell mortgage insurance, a relatively little known practice at the time. CMI identified the corporate relocation service industry as their first step to diversify, as it had strong potential to increase mortgage insurance sales in combination with established relationships with banks, realtors and related businesses. Corporate Transfer Services (CTS), a subsidiary of a large real estate firm in Chicago, had mutual connections to the MetroNet association of real estate brokers, for whom CTS was to develop a national network of corporate relocation services. Unfortunately, CTS had historically underperformed and is looking to sell an 80% interest for a substantial price above net worth ($5,000,000). CMI is wellcapitalized and primed to purchase CTS to develop relocation services in conjunction with MetroNet. CMI is willing to pay for a justifiable amount above net worth for 100% ownership. Negotiations Interests, Issues, Positions, and BATNA (CMI & CTS) CMI’s main interests are to increase mortgage insurance sales and diversify into the corporate relocation business, which was growing at a 10-15% annual rate. To be successful, CMI would need to nurture its close relationship with MetroNet, with which Elliott Burr (CTS) has longstanding ties, and ensure that negotiations would not create a rift between the two organizations. CMI’s initial offer for CTS was $820,000 ($400,000 above net worth) with a reservation price of $1,020,000. CMI’s offer stipulated a 100% stake in CTS and that a key manager, Thomas Winder, would relocate to Philadelphia to run the business. Another key position included that the heads of CTS would agree to a non-compete agreement for two years. CMI’s BATNA could either be to create its own relocation service from the ground up or look for alternative acquisitions. Building a relocation service from scratch is not desirable

CTS’ initial price was $5 million for an 80% stake in the company with an unknown reservation price. Saunders. and Bruce Barry. this would disguise true interests for each company and damage relationships upon which CMI is reliant. The major stockholders at CTS and CMI are prepared to collaborate because they freely exchange information and are receptive to each other’s goals.since it would require CMI to create an operable company by July 12. . William Lehman. Collaboration vs. It is also important to consider the consequences of failing to reach an agreement. and no other potential buyers are foreseeable. For these reasons. 67. Davis M. it is in CTS’ best interest to negotiate an agreement with CMI. CTS: The primary interest of CTS’ owners is to make as much money as possible from the sale of company. it is in CMI’s best interest to work toward a successful negotiation with CTS. The owners are looking to exit the corporate relocation business since the company has been unsuccessful thus far. and Thomas Winder – seek to maintain a minority stake and potentially reap the rewards of a growing business.1 If either group adopted a competitive negotiation strategy. An alternative acquisition is unlikely since CMI had already exhausted their search for other targets. only a few months away.2 Given that neither CTS nor CMI has a strong BATNA. it is in the best interest of both parties to work out a solution that can result in a “win-win” strategy. CTS’ BATNA would be to try and turn the company around themselves or pursue a sale with a different buyer. Max H. Bazerman: Negotiating Rationally (New York: Free Press. Competition Our position is for CMI to pursue a collaborative negotiation strategy to acquire CTS. Since previous attempts to improve performance have failed. 1992). 1 2 Roy Lewicki. Frank Randall and Jim Dolan (CMI) will preserve their relationship with Burr (CTS) and MetroNet. 19. The four owners – Elliott Burr. Michael Kupchak. By doing so.

Roy Lewicki. Davis M. They have no specific qualms with capital or stake in the company provided the demand is reasonable. Randall’s primary concern for fair value of CTS could be satisfied. Their demand for a residual 20% stake reveals that CTS owners understand the potential for growth in synergy with CMI. Saunders. . CMI cannot afford to miss out on a good relationship with Elliott Burr. First. Davis M. 577. More importantly. meeting their interest of cashing out now.3 This is evident in the demand of CTS partners. Randall and Dolan could satisfy Burr and Winder with company shares and maintain relationships with CMI. CTS’ valuation of the firm seems to be derived from multiple sources. relationship damage will be extensive. In a collaborative agreement. CMI needs to have clear understanding of their goals as well. including a huge sum of money and continued stake in the company. 580. Randall believes that Burr’s network is “more important than the acquisition of CTS itself. The disjointed demand shows that some of the owners simply want to get out – not likely to be Burr and Winder who are both active. In addition to being a MetroNet director and major investor in CTS. Dolan suspects that the more elusive owners (Lehman & Kupchak) are driving the extreme purchase price.Randall and Dolan (CMI) must understand the true interests of the individual CTS partners. while simultaneously growing CMI and creating growth from vertical integration. In a competing negotiation. 3 4 Roy Lewicki. and further reinforce the need for a collaborative negotiation instead of a competing one. who they value as “an experienced operations manager” at CTS. and Bruce Barry. CMI will lose Tom Winder. Lehman and Kupchak could be bought out. and Bruce Barry.”4 Randall’s belief undeniably states that the importance of outcomes pale in comparison to the importance of relationships. Saunders. They see great potential for growth and increased revenue as a result of this relationship.

Submission Confirmation You have successfully submitted your work. You will receive an email confirmation containing this information. User: Class site: Assignment: Submission ID: Submitted on: Jesson Joy (jesjoy) MGT 246 001 / MGP 246 001 WQ 2012 Position Paper 1 .Capital Mortgage e4e62716-1206-47ac-824c-fd45ae5a5ea5 Jan 17.pdf (60 KB) . 2012 5:07 pm Your submission included the following: Submitted Attachments • Group 3P Position Paper 1.