Dynamics of Negotiations: Failed GE-Honeywell Merger Deal

Dynamics of Negotiations Failed GE-H iywell Merger DealConceptually, the purpose of every duologue is to reach an agreement and realize the desired outcome, by means of efficient and amicable resolutions. The simple principle is to separate the parties from the issue, and focus on their interests rather than positions. But in reality, the process is not always so-especially in multiparty negotiations, which involves multiple parties with varying interests and remnants. The objective of this essay therefore, is to critically analyze the complex nature of multiparty negotiations with specific reference to a failed GE-Honeywell merger deal. The ultimate aim is to cotton up the dynamics of the negotiations from standpoint of the parties interests and positions in the overall outcome.Keywords multiparty negotiations, desired outcome, interests positions, failed merger.1. IntroductionMultiparty negotiation is defined in this context, as interactions involving multiple parties with va rying interests and differences. Multiparty negotiation potful be a complex and messy process, often with non-obvious outcomes. A number of elements make multiparty interactions significantly more complex and awkward than ii-party negotiations. A notable difference is the variety of decision rules that might occur. For instance, in a two-party arrangement, failure of both parties to reach agreement leads to impasse whereas, in multiparty negotiations, different decision rules could apply.In this article, analysis is foc employ on interests, differences and positions of all the parties involved in negotiating the (2001-2005), proposed vexation merger between General Electric Company and Honeywell International Inc. The rationale is to seek the interplay between the parties, in terms of strategies and tactics adopted during negotiations degree of awareness of the parties BATNA and extent to which they employed competitive or cooperative strategies. The report also attempts to di agnose framing/anchoring techniques in the negotiations, and equally consider the role of trust, reputation and expertise in the overall decision/outcome of the negotiations.2. Main Parties InvolvedThe bid by General Electric (GE) to take over Honeywell International Inc. in 2001 was set to become the biggest merger in industrial history, when the European Commission barred it from pickings place1. This transatlantic negotiations for a business merger involved strategic parties such as GE Manufacturing Company, GE Capital Services, United States Department of Justice, the US Military, European Commission and the European Court of First Instance (CFI). Notable among individual personalities who also participated actively and played tactical roles in the negotiations are European contender commissioner- Mario Monti and the GE Spokesperson-Jonathan Todd.3. Institutional and Historical ContextIn 2001, one of the biggest companies in the world, General Electric-American giant manufactur er of aircraft engines was attracted by Honeywell Internationals aerospace businesses1-avionics technology, which fit in perfectly with GEs business interests creating remarkable synergies for these two American companies. GE Manufacturing Company was responsible for operational aspect, while all pecuniary obligations for the merger were the responsibility of GE Capital Services-the financial arm of General Electric. The United States Department of Justice as a critical party in the negotiations, had earlier passed the merger, on condition that GE disinvest itself of Honeywells military helicopter unit, to protect the US military1. However, approval from European Commission was not easy to obtain and the deal fell through.4. Interests/Positions of the PartiesAccording to GE-Honeywell, their interest in the merger was to capitalize on core business competencies and create synergies. Other expressed reasons included, increasing market power and sharing infrastructure. The US-Departm ent of Justice was happy with the proposed-merger and consented to it. However, it took intelligence of the concerns of US-Military over the security of their military helicopters whose manufacture/servicing was vested with Honeywell. In view of this, the Department agreed with all other(a) terms of the negotiations, but recommended that GE uncase itself of Honeywells military helicopter unit to protect the US military1.Conversely, the European Commission-EC was unhappy with the deal and prohibited its emergence. Their interest was to protect European markets from perceived monopoly. EC argued that a merger between GE and Honeywell would create too powerful an entity that would adversely affect the competitive position in the aerospace industry1. They maintained that the merger would give the two companies huge combined market share in the common markets in which they operated1. This, they observed would deadening competitors as well as customers, by creating a unaired monopoly situation1.5. Strategies and Tactics AdoptedAll the parties involved in this negotiation failed to invent options for mutual gain. While GE-Honeywell was more of contending and unwilling to concede to any of the demands the EC on their part appeared to have had bottom-line in the negotiations, as they never considered other options away their interests. They all exhibited clear case of high-concern for self and low-concern for others. For instance, The EC demanded that substantial chunks (amounting to about $ 7 billion) be divested by the two companies, and restrictions be imposed on the operations of the highly profitable GE Capital Services1. The demands GE said were far more than what it was ready to concede. The American companies and the regulatory governing resorted to threats and slow/low commitment tactics while the EC stood on take-it-or-leave-it option.6. Awareness of BATNA and Use of Competitive/ reconciling StrategyIt is obvious that the flexibility of Best Alternativ e To a Negotiated Agreement-BATNA, which was supposed to show all the parties what alternatives to negotiated agreements would be, and equally serve as standard against which agreements be mensural was neglected in favor of predetermined bottom-line. GE and its allies for example, recognized court litigation as their only BATNA, while EC predetermined a ban without further options.As it were with many multiparty negotiations, the differences in interests/positions of the transatlantic regulatory authorities gave rise to competitiveness instead of cooperative strategy, which was unfortunately not resolved. Having used much of delay tactics, their inability to cooperate and explore other options to resolve their differences caused the deal fell through.7. Use of Framing and Anchoring TechniquesAnchoring and Framing are two mental techniques that negotiators use to influence the negotiation process and its final outcome. While frames give alternative descriptions that help negotiator s make sense of complex information and focus on the main issue Anchors as bobby traps are set by negotiators to win their opponents, by defining the mental parameters within which the process operates. These two techniques featured prominently in this negotiation.For example, the EC being fully aware of its predetermined bottom-line set anchors for GE, by making outrageous demand for huge divestment of $ 7 Billion and other heavy sanctions it knew GE will be unwilling to concede. These high claims indeed misled GE. The US Department of Justice also used Framing technique to speedily self-guard US Military, by recommending a divestment from its helicopter arm from the merger. The Department focused on the main issue and disregarded any other feature outside the frame of the main issue. Also, the resorted name-calling by the merging companies and their allies on EC as being dubious and anti-American business was part of their anchoring to provoke good decision and skew the final o utcome.8. Role of Trust/Reputation/Expertise and the Non-obvious SolutionIt is glaring that reputation/expertise of the merging companies remained the focal issue upon which the negotiating authorities based their arguments-of which many commentators knew would not produce an obvious solution. GE has a reputation of being arguably, the richest and best aircraft engines manufacturer in the world and Honeywell was rated worlds number one in manufacture of aircraft avionics. The estimated capital worth of their merger was about $42 Billion2, which indeed played an intimidating role in the negotiation.Lack of trust became a critical factor that determined the final outcome of the negotiations. While EC questioned the integrity of the merger, and viewed it as a plot by the American companies to create monopoly and harm competitors/customers the American companies and their supporters described ECs position as anti- American business attitude2. This undercurrent of tension/distrust ran so deep across the ranks that some called it transatlantic conduct war2. With grandstanding positions by the parties from onset, many opined individuals/groups pointed earlier that there was possibility of non-obvious solution, which indeed became the final outcome9. Lessons Learnt and ConclusionsThe important lesson learnt here, which is in total agreement with the concept of negotiation, as can be deduced from above examples is that making multi-party negotiations work successfully is a complicated and complex process. As can be inferred from above analysis, the negotiation fell through because of varying interests, parties differences and lack of trust.Strategically, the merger made good business sense, but contrasting positions hindered its realization hence, a failed merger. This special-type multiparty negotiations, marked the first time in negotiation history that transatlantic regulatory authorities differed significantly in their decisions.Conclusively, it is worth noting he re that meticulous consultations with effective use of individual BATNAs, Framing and Cooperative strategies during the interactions would probably have paved the way for successful negotiations that would be of mutual (win-win) benefits.