PRIVATE
THE FEE DISPUTE
CONFIDENTIAL INFORMATION FOR C. WINGER, BINGOWARE CEO
You are Carl (or Carla) Winger, CEO of BINGOWARE, a high tech startup that just sold for $10 million worth of COMPUCOM stock to COMPUCOM, INC., a leader in information technologies. As a new division president at COMPUCOM, your future is bright. But you have one problem. You are in a dispute with Bucks Associates, a hot shot investment bank that you have worked with on several projects. In this case, Bucks was supposed to help you sell your company and now wants to be paid $350,000 for doing little more, in your view, than causing trouble in your negotiations to sell your firm. You are meeting today with R. Reilly, the Managing Director of Bucks, to try to settle this dispute before it goes to court.
You engaged Bucks a year ago to find a buyer for BINGOWARE. Ron Edwards, a new partner, was assigned to your case and promised to bring you several qualified buyers in short order. Edwards did a valuation analysis that placed the value of BINGOWARE at $15 million (high end) and $12.5 million as a "fair" price. Your fee agreement called on you to pay Bucks an upfront, nonrefundable amount of $40,000 (you have paid this). Once a deal was struck, you were to pay an additional commission of 5% of the first $5 million, 2% of the next $5 million and 1% thereafter. You did not read the contract carefully (you were a CEO after all), but you assumed that this fee related in some way to work that Edwards would perform.
After about eight months of silence from Edwards, you came up with COMPUCOM as a bidder (Edwards produced a potential buyer at about the same time that was not even in the same league as COMPUCOM). Edwards came to the initial meeting with COMPUCOM and presented his valuation materials, and the COMPUCOM team became very upset at what they said were "completely outrageous" figures and projections. They said that Edwards was not a "constructive element" in the discussions and insisted that you get him out of the room. Edwards added nothing of value thereafter.
The deal closed for $10 million worth of COMPUCOM stock when COMPUCOM made a "first, fair, and final offer" that would terminate in 24 hours. You accepted this offer immediately. Then Bucks presented you with its bill for $350,000. You protested vigorously, pointing out that you had come up with your own buyer, that Edwards had been a "drag" rather than a help in the negotiations, and that his wildly optimistic valuation materials had nearly killed the deal. After this initial exchange, Edwards (mysteriously) stopped calling. Now Reilly has taken over.
You do not want to pay this bill, but your chances of winning this case in court if Bucks sues you are not good. The contract states: “the fee will be payable if BINGOWARE is sold during the term of the agreement, regardless of whether it is sold to a buyer proposed by BUCKS.” But your lawyer (your brother-in-law) thinks the case will go to a jury, where "anything goes" in the USA and where Bucks will certainly suffer reputation damage for suing its former clients. And the lawyer wants to counter-sue Bucks for negligence if Bucks sues you. After all, your complaint has as much to do with the complete lack of effort expended by Edwards and his incompetence as the fact that you ultimately sold the firm to your own buyer. Bucks will have to spend roughly $75,000 – $100,000 to go to trial against you. Your own lawyer fees will be much less – around $50,000 (in the U.S., each side pays its own lawyers — win or lose).
Your new boss at COMPUCOM wants your full attention, so letting this dispute get to court is really not an option. And you feel that Bucks’ investment banking services could be very useful to you in your new job if you can get beyond this dispute. In fact, an opportunity that just came to your attention – and potentially even bigger than the BINGOWARE deal – seems to be tailor-made for Bucks’ expertise. All the same, you don’t want to pay $350,000 for nothing. Good luck getting this bill discounted!
Preparation Questions:
1. What is a one-sentence summary of the key message you want to send in this conversation?
2. How should you “frame” the message – in terms of the contract, performance data, relationships, interests, etc?
3. What is your specific goal for this encounter?
4. What is the basis for your credibility– and do you need to reinforce that basis? Check: Perceptions of expertise, competence, formal authority, trustworthiness.
5. How might your idea conflict with the Reilly’s? How can you minimize any such perceived conflicts?
6. How might your idea conflict with any of Reilly’s interests? How can you minimize any such perceived conflicts – or offer compromises to bridge our different needs?
7. What commitments can you appropriately ask for?
8. How can you leave the relationship better than you found it?
THE FEE DISPUTE
CONFIDENTIAL INFORMATION FOR
ROB (OR ROBERTA) REILLY, MANAGING DIRECTOR OF BUCKS ASSOCIATES
You are R. Reilly, Managing Director of Bucks Associates, a hotshot investment bank in the high tech field. You are in a nightmare situation that you have avoided up to now as Managing Director — a client whom the firm served loyally on several occasions is refusing to pay the fee stipulated in an agreement. You are having a meeting with the client, Carl (or Carla) Winger former CEO of BINGOWARE (and now a division president of COMPUCOM), to settle this dispute.
Here is the problem. Your former partner, Ron Edwards (who has now left Bucks to start up his own consulting business), was engaged by Winger to find a buyer for BINGOWARE. He and the staff at Bucks did the usual thorough job of valuing it aggressively (but realistically) and looking for buyers. Bucks valued BINGOWARE at between $15 million (optimistically) and $12.5 million (fair value). But Ron had a hard time coming up with a qualified bidder. Your fee agreement was the standard one. First, Winger paid Bucks an upfront, nonrefundable payment of $40,000 (this has been paid and you have it). Next, Winger was supposed to pay an additional commission of 5% of the first $5 million, 2% of the next $5 million and 1% thereafter. Bucks’ standard contract explicitly states that “the fee will be payable if BINGOWARE is sold during the term of the agreement, regardless of whether it is sold to a buyer proposed by BUCKS.” This is about as clear as language can get.
After about eight months of prospecting, Ron came up with a bidder just as Winger himself found COMPUCOM. Winger paid no attention to Ron’s prospect, and when Ron showed up at the COMPUCOM negotiation and presented his valuation materials, the COMPUCOM team went crazy. They said that Ron was a "destructive element" in the discussions and insisted that further talks be held without him. Ron was relegated to an uncomfortable (and unprecedented!) role on the sidelines. You assume Winger continued to use your firm's materials on valuation, however.
The deal quickly closed for $10 million worth of COMPUCOM stock (compared to the $12.5 million "fair" value you had projected). You then presented Buck's bill for $350,000. Winger called Edwards and went ballistic. Winger argued that he had come up with his own buyer, that Edwards had been a "drag" rather than a help in the negotiations, and that Buck's wildly optimistic valuation materials had nearly killed the deal. Edwards handed you a memo complete with records showing about $200,000 worth of time ($150,000) and expenses ($50,000) before he left for his new venture.
Your lawyer is sure Winger legally owes you the full $350,000, but collecting it will require a messy, public trial before a jury. And in the USA, each side pays its own lawyers, win or lose. So your legal costs of about $100,000 mean the most you can hope to net from winning the case would be about $250,000. There is another problem as well: Bucks Associates has never litigated against a client. And the firm’s partners do not want to start now by washing Edwards’ dirty laundry in public. Lastly, you and the firm’s partners believe there may be valuable work down the line with Winger at COMPUCOM if you can get past this dispute.
Thus, Bucks has authorized you to reduce the fee to any amount you think is appropriate, given the firm’s various interests. You suspect they could go so far as to remove you from the Managing Director slot if discussions break down and you end up suing Winger. But if Winger behaves in a completely unreasonable, insulting manner, you believe they could be convinced to stand behind you and go forward with litigation, though you would rather avoid that messy scenario. Good luck settling this dispute!
Preparation Questions:
1. What is a one-sentence summary of the key message you want to send in this conversation?
2. How should you “frame” the message – in terms of the contract, performance data, relationships, interests, etc?
3. What is your specific goal for this encounter?
4. What is the basis for your credibility– and do you need to reinforce that basis? Check: Perceptions of expertise, competence, formal authority, trustworthiness.
5. How might your idea conflict with Winger’s? How can you minimize any such perceived conflicts?
6. How might your idea conflict with any of Winger’s interests? How can you minimize any such perceived conflicts – or offer compromises to bridge our different needs?
7. What commitments can you appropriately ask for?
8. How can you leave the relationship better than you found it?
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