Negotiations
1. Please submit your planning document
2. In an optimistic assessment of the negotiation, what is the best deal you can imagine? (Please Enter in Millions)
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Creative Consensus, Inc.
box 473, HCR 33, Spruce Head, ME 04859
phone: 207-596-6373 fax: 207-596-0538 email: [emailprotected]
THE BIOPHARM-SELTEK NEGOTIATION
Formerly known as Synertech-Dosagen
Leonard Greenhalgh
Amos Tuck School, Dartmouth College
Role for Seltek, CFO
You are the Chief Financial Officer of Seltek, a
medium-sized pharmaceutical company with annual
sales of $150 million. You need to sell off a U.S. plant
that was set up to produce a line of genetically
engineered compounds. Seltek has only been able to
develop one successful compound, Petrochek, a
bacterium that breaks down oil into water-soluble
compounds. You have been selling Petrochek to the oil
industry, where it is used to help clean up oil spills,
and have just completed the research to show that it
can be used in sewage treatment plants to biodegrade
whatever petroleum-based products find their way into
sewers. The business potential for the oil industry has a
present value of $5-7 million; the potential for the
sewage treatment industry is hard to pinpoint, but
might be very lucrative, depending on worldwide
environmental regulation trends.
Your company, Seltek, needs to sell the U.S. plant
because it barely breaks even with the one product it
can manufacture there. Top management originally
expected to be manufacturing a whole line of
genetically engineered compounds, but some
compounds that initially seemed promising have since
been abandoned. The current strategy is to concentrate
instead on conventional pharmaceuticals. Therefore,
Seltek has decided to get completely out of biotech
manufacturing, and this is why the biotech plant and
the Petrochek patent must be sold.
The plant has been hard to sell because it is uniquely
configured to manufacture genetically engineered
compounds. This kind of manufacturing requires
special water processing. With minor modifications,
the plant could also be used for making computer
chips; however, the computer chip industry has too
much capacity, so its highly unlikely any chip
manufacturer would buy it.
You have considered the option of rebuilding the plant
so that it would have a normal configuration for
general manufacturing. Doing so would take six
months and cost $3 million, but after rebuilding it
would have an appraised value of $10 million (thus,
you would just as soon sell the plant for $7 million
right now because the net yield from rebuilding the
plant is only $7 million$10 million minus the $3
million you would have to invest). Furthermore, you
would prefer to sell the plant to someone who will take
over operating it as a pharmaceutical plant, because
this will keep the work force intact. This is very
important to you because, when it became obvious that
Selteks biotech operation was foundering, many of the
workers thought about finding new jobs while the
labor market was favorable. You convinced the key
employees to stay on, promising them six months
severance pay if the plant were shut down. The
liability for severance pay is $1 million, which you
would avoid having to pay if you sold the plant as a
turnkey operation to BioPharm.
BioPharm, a $700 million U.S. pharmaceutical
company, has expressed some interest in buying the
plant. Their plant engineers have inspected the plant
and deemed it suitable for their purposes. You know
from public documents that they have no genetically
engineered compounds in their current product line,
so you’re not sure whether they intend to reconfigure
it as a normal manufacturing facility. The only
reservation expressed by their engineers was that the
Creative Consensus, Inc.
Page 2
location is 70 miles away from their headquarters
facilities.
The sooner you sell the plant, the better. Seltek
management needs to turn its full attention to
conventional pharmaceutical manufacturing. Theres
enough demand for Petrochek that you could keep the
plant operating at break-even for up to a year if
BioPharm cant do the deal right away. That wouldnt
be desirable, however, because you want to free up
the funds invested in the plant for other projects that
have greater strategic importance.
Once you sell the plant, you will need to sell the
Petrochek patent. Its the only compound you have
been manufacturing at the plant, and the patent is of
zero use to you once the plant is sold. Elf, a European
petrochemicals company, has offered you $4 million
for the patent, and if you waited a year, theres a 50%
chance you could sell the patent for $5 million to
Exxon when Exxons new biotechnology plant goes
into full operation. (Neither Elf nor Exxon is
interested in buying your plant.) It would be perfect if
BioPharm would buy the patentfor at least $4
millionas well as the plant.
Your company is desperately short of funds to invest
in new projects, so selling the plant and the patent is an
immediate priority. This means that you will refuse to
lease the plant to BioPharm, if thats what they are
interested in.
The plant can be turned over to BioPharm immediately
if theyre interested. In order to complete the sale, you
or they will have to pay off a $200,000 property tax
liability. This was incurred as a result of a problem
with the appraisal. Seltek contested the figure that the
appraiser had come up with, because it was
inconsistent with the tax break Seltek had been offered
to locate the plant where it is. The court ruled in favor
of Seltek, so now its time to pay up. Theres no issue
here because you put the $200,000 into an escrow
account pending resolution of the dispute.
You are about to meet with the Chief Financial Officer
of BioPharm. You have full authority to sell the plant
(and the Petrochek compound, if BioPharm is
interested) for whatever you can get. Below is the
available information concerning the appraised value
of the Seltek plant.
Seltek Plant
The following information is in the public domain and
was made available to BioPharm.
1. The plant (i.e., the building and land) was
appraised by a real estate agent two years ago at $20
million. The local real estate market has declined 20
per cent in the last two years due to the state of the
economy.
2. Public accounting information shows that the plant
is valued at $12 million on Selteks accounting
statements. The land value is recorded at its original
purchase price of $1 million, and the building has been
depreciated from an original $20 million down to $11
million, for tax advantages. (The IRS lets a corporation
reduce the book value of a building every year as if
it were wearing out, like an automobile does with
increasing mileage. The resulting theoretical loss in
value can be deducted from the companys tax bill.)
3. The building is insured against total loss (fire,
explosion, hurricane, etc.) for $8 million.
4. An identical plot of land across the street from
the Seltek plant just sold for $500,000 after being on
the market for three years.
5. There are no environmental liabilities pending,
but there is a $200,000 tax lien on the property.
THE BIOPHARM-SELTEK NEGOTIATION
Formerly known as Synertech-Dosagen
Role for Seltek, CFO
Seltek Plant 1
Negotiation Planning Document
My Name:
Negotiation Title:
My role:
Issue
Self-
Other-
Issue 1
(Write your position here)
(Position)
(Priority)
(Interests)
Priority
(Interests)
Issue 2
Issue 3
BATNA
Reservation Price
Target
Other notes: (Write anything you think might be useful but cannot fit above, such as strategies and styles)
