6/29/2020 The art of smart negotiation: From Ratan Tata, Kumar Birla to RPG, Anchor and Wartsila - The

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The art of smart negotiation: From Ratan Tata, Kumar Birla

Zia Mody tells a story from early on in her career, when her law firm was representing a
client in an acquisition deal in New York. The negotiations had stretched interminably and
the CEO of the company finally called his team together and told them it was time to
consider walking away from the deal — literally. If the other side didn't agree on the asking
price in the next round, he said, the whole team would stand up and walk out of the room
as one.

It was a calculated strategy and Mody knew it was risky. What she didn't realise is that the
threat to the strategy would emerge from a wholly unexpected quarter. The other side did
indeed say 'no' to her client's offer price the next day and on cue, everyone in the team
dramatically stood up to leave. Everyone, that is, except the CEO. "He kept sitting there,"
recalls Mody. "He wanted the deal badly and he just couldn't bring himself to walk away.
Eventually, he agreed to pay a higher price. It was a typical competitive male thing — deal
karna hi hai. I believe they settled the transaction in the men's room." EXPAND
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Mody learnt quite a few hard lessons from that fiasco in New York, which stood her in Wartsila India

good stead as her firm, AZB & Partners, represented the Tatas in the Corus, Jaguar and
Spencer
Landrover deals and Bharti in the Zain deal. "Before you even start negotiating a deal, you
have to get a buy-in from the client on when you should walk away. You have to agree on Panasonic

what the must-haves are and what can be traded. Otherwise the negotiations can go on
Big Change:
ad nauseum," she says.
The end of Five-Year Plans: All you need to know

Sharp negotiators are calm and dispassionate, carrying the figures in their head, quantifying every trade off inherent to the deal. Or
that's what the science of game theory says. In real life however, people are not always rational under pressure, when time is short and
the stakes are high. Vedika Bhandarkar, managing director and vice chairman of Credit Suisse, believes the biggest challenge in a
negotiation is to stop emotions from overtaking logic. "Deal fever happens," she says. "You sometimes get so caught up in the
negotiations that you lose the ability to step back, look at things objectively. You're too much in the weeds and lose sight of the bigger
picture."

As advisors to the deal, lawyers and merchant bankers are traditionally called upon to play the role of the bad cops in negotiations, while
their clients are the good cops who maintain an amicable façade so that relationships are not damaged. But even this cardinal rule is
sometimes broken and Mody recalls instances where she was obliged to step in as a peacemaker when the negotiations became too
heated: "You have clients getting agitated and losing their tempers over silly points. When that happens, I call the other side's lawyer for
an off-line negotiation so that everyone can gain perspective and calm down."

When the RPG group bought Spencer & Co in the late 1980s, Harsh Goenka, now the group chairman, was put in charge of the difficult
negotiations. For example, Spencer's investment bankers fixed the initial meeting with the CEO at midnight — they said it was
considered an auspicious time — but the gentleman never turned up. "That deal was a test of my patience," says Goenka. "I did get to
understand the mind of the seller, who was a soft human being, with his own kinks. He even stipulated that his directors would remain
on the board after the acquisition. It was a deal where most others would have opted out, but it was very important to me, and I gave in
to all these strange conditions."
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6/29/2020 The art of smart negotiation: From Ratan Tata, Kumar Birla to RPG, Anchor and Wartsila - The Economic Times

Whether you're buying a company, a house or vegetables, it's always advantageous to keep the other side on the backfoot. Not showing
up for an occasional meeting is probably one such tactic. But it's one that Goenka himself has never used. "In negotiation, patience is
the biggest virtue, followed closely by decency," he says. "We have had several acquisitions over the last two decades and in all these,
the spoken word was more important that the written document. I always look to find where the value lies not only for me, but also for
the other side."

Today, India Inc's chairmen — Ratan Tata, Kumar Birla — rarely make an appearance at the negotiating table, preferring to orchestrate
things from their offices. This is a good thing, says Nitin Potdar, M&A partner at the corporate law firm J Sagar & Associates, because
the entry of a promoter usually leaves no room for further negotiation. "MNCs understand this better," he says. "They prepare a strategy
of dealing with key points with key people. Typically, there would be two rounds of negotiations, with the hard issues reserved for the
second round. Indian promoters make the mistake of entering the negotiation too early."

Potdar, who represented Anchor in its deal with Panasonic and Camlin in its recent deal with Kokuyo, tells the story of an earlier
assignment where he represented an MNC which was acquiring an Indian company. The promoter was to stay on as vice-chairman and
the MNC was prepared to negotiate on what his role would be post-sale. "We thought he might demand the power to appoint key
executives and vendors. But it quickly became obvious he was only concerned about the trappings. He turned the discussion to what
would be the size of his support staff, car and office. My client was quite happy to concede all these points," says Potdar.

Acquisitions and joint venture (JV) contracts are generally win-win situations, but the true test of a lawyer's skills is when a contract has
to be rescinded and the two parties need to agree on the terms of separation. AZB & Partners has helped many clients negotiate
through such troubled waters, especially in the aftermath of Press Note 18, when several MNCs sought to exit JVs with Indian
promoters. "It's not easy unscrambling the egg after many years of operating a JV. If the parties can't reach a settlement, the case goes
into litigation. The negotiations are driven by a need to avoid that," says AZB senior partner and CEO Abhijit Joshi.

Twenty years ago, when he was 26 years old, Mukul Kasliwal's family gave him the responsibility of ending a troubled collaboration with
a French MNC. The negotiations were hostile and lasted a year, during which time Kasliwal based himself at a friend's house in Paris,
riding the metro every day to his lawyer's office. "A good lawyer is crucial to these kinds of negotiations," he says. "Fortunately, I had a
great rapport with our lawyer, an Englishman settled in Paris, who came to us through Dara Mehta of Little & Co. He played a major role
in the negotiations since the rest of us didn't speak French. He told us a good a good settlement is where both sides would feel the pain
equally, even though we were like David to their Goliath."

What’s the deal

Now designated chairman of MW Corp, Kasliwal says the lessons from this early engagement have stayed with him through his career:
"The biggest barrier to good negotiation is ego. When people who have never seen each other before face off in a room, it can be
difficult. You have to take some time initially
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6/29/2020 The art of smart negotiation: From Ratan Tata, Kumar Birla to RPG, Anchor and Wartsila - The Economic Times

Getting to know the other side is never easy since sharp negotiators are poker faced and play their cards close to their chest. However
much homework one might do ahead of a meeting, the key learnings usually happen only when the actual negotiations start — and
even then you need to carefully interpret every word. "What you hear at the table is not always what the other side wants," says
Bhandarkar of Credit Suisse. "In a complex negotiation where the CEO talks to the CEO, the banker talks to the banker and the lawyer
talks to the lawyer, it works best if the team members share the intelligence gathered to figure out what they can trade on."

Gathering intelligence is usually hard work, but once in a while, you might get lucky. Bhandarkar recalls attending a meeting via
videoconference, where the other side switched off the video at the end of the negotiation, but neglected to switch off their audio. "We
listened to them planning for the next phase of the negotiation in great detail. We did very well in that particular deal," she says.

E-mail and SMS have become important strategy tools in modern day negotiations, allowing the team at the negotiating table to stay in
contact with headquarters at every stage. Sunny Banerjea, executive director, KPMG, is a veteran of customer negotiations, both in his
present job and his earlier assignment with IBM in the USA. He says: "The chief negotiator needs to keep eye contact with the other
side, because it is important to maintain the illusion that he is the decision maker. But there will be support staff at the table whose job it
is to stay connected with headquarters. If the team members need to confer, they would SMS each other or have a very discreet set of
physical cues."

Corporates send multi-functional teams to the negotiating table when the issues are complex and require input from various technical
experts and geographic regions. These team members are supposed to be on the same side, but they often have different priorities and
imagine different ideal outcomes. Business may be focused on closing the deal while finance is most concerned about costs. The one
from sales may be bent on preserving his account relationship no matter what the cost, while the legal department may want to discuss
intellectual property. Such teams need to align themselves and resolve their differences over trade-offs and tactics in advance of the
negotiations.

Rakesh Sarin, managing director of Wartsila India sells power plants, a business where negotiations can be intricate. Sarin usually
sends in a team of not more than five members to meet the buyer, headed by sales and supported by service and finance. "We're selling
a concept of smart power generation," he says. "We find some buyers are focused on the transaction price. Others are concerned about
costs over the life cycle of the equipment. Often, both are on the same team. The biggest challenge is to understand the needs of the
other party. As the saying goes, people buy holes, not drills."

Besides heading the Indian subsidiary, Sarin also looks after the Finnish MNC's power business across Asia. His observation — nobody
can beat Indians when it comes to price negotiations. Indeed, in this age of cross border mergers and acquisitions, every CEO, lawyer
and merchant banker has observations to make on negotiating cultures. "Dealing with the Japanese can be a painstaking experience,"
says Harsh Goenka. "When they say yes, it need not always mean the end of the negotiation. One needs to have patience with them,
and just cannot offend them. The Americans, on the other hand, have a direct approach. The British are more concerned about protocol
and about what is the right thing to do. The Germans are more mechanical and process driven."

Vedika Bhandarkar says the Indian habit of using back channels is a major irritant in cross border negotiations. As a merchant banker,
she has often had clients talking to prospective buyers directly, even as her firm is engaging with a number of buyers to get the best
deal. "Indian companies easily go outside the formal negotiation process. While negotiating, they use contacts they might have
cultivated within the other company, people who are not there at the negotiating table. In the USA, that wouldn't work. They take the
formal process to be sacrosanct."

Cultural differences between the West and the East run deep, and these come to the fore in negotiation. Westerners view Eastern
negotiators as inefficient, indirect, and even dishonest, while the Easterners see Westerners as aggressive, impersonal, and excitable.
Zia Mody compares the Americans and the Japanese: "The Japanese are process driven, so you have to be patient. Indian promoters
who try to accelerate things with while negotiating with them usually fail. Americans are comfortable with a bottom line approach. They
don't mind hearing bad news on certain issues, you can be direct. But ultimately, everybody is working towards striking a good deal."

Negotiation, they say, is the art of letting them have your way. Or, as KPMG's Banerjea puts it, "everyone needs to be in the happy zone
by the end."

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