“A huge mistake.” “A shot in the dark.” “An audacious move.” No matter what negotiation techniques you employ, major deals are almost guaranteed to provoke strong—and conflicting—reactions. Those phrases were just a few of the media’s characterizations of wireless carrier AT&T’s acquisition of media and entertainment firm Time Warner, announced in October 2016 for $85.4 billion.
Some analysts believed the deal could help both companies grow. AT&T would become the first U.S. wireless carrier positioned to compete nationally with cable companies by offering an online video bundle—akin to a cable-TV package—featuring Time Warner networks such as CNN, HBO, and TNT, along with Warner Bros. productions. Time Warner, long tethered to traditional cable distribution, would finally gain a foothold in the wireless world.
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Still, reactions to the announcement were mixed, with several pivotal issues drawing scrutiny. Together, they offer useful lessons for negotiators facing high-stakes, high-visibility deals.
1. The effect on outsiders. U.S. regulators were expected to scrutinize the merger closely, concerned that industry consolidation could reduce competition and raise prices for consumers. Los Angeles Times columnist David Lazarus predicted that the Justice Department and the Federal Communications Commission would impose consumer-protection conditions to safeguard AT&T customers.
In dealmaking, top negotiators look beyond the parties at the table to consider how a proposed agreement will affect outsiders—customers, competitors, regulators, and the public. This perspective is especially critical in mergers and inter-industry partnerships, where decisions reverberate widely. Anticipating third-party effects not only promotes ethical decision-making but can also help negotiators prepare for regulatory scrutiny and public backlash.
2. A possible culture clash. Another unresolved question was whether AT&T’s and Time Warner’s markedly different cultures could coexist. Time Warner subsidiaries such as HBO—described by The New York Times as “freewheeling”—appeared worlds apart from AT&T’s more “buttoned-up” corporate culture.
AT&T executives reportedly reassured leaders at HBO and other entertainment divisions that they would retain creative control and receive sufficient funding. Still, skepticism remained. As part of their negotiation techniques, professional negotiators examine not only financial synergies but also how organizations will integrate people, processes, and cultures once the ink dries.
3. A high level of uncertainty. Given the rapid disruption of the media and communications industries, many observers viewed the long-term prospects of the AT&T–Time Warner merger as uncertain. New York Times technology columnist Farhad Manjoo labeled the agreement “speculative,” calling it a “Hail Mary pass” intended to gain traction in an unpredictable future.
In negotiations clouded by uncertainty, parties can often reduce risk through contingent contracts—“if, then” agreements that specify actions based on future events. AT&T and Time Warner included contingencies to protect themselves during the pre-closing period, outlining payments if regulators blocked the deal or if Time Warner accepted a superior offer.
Contingent contracts can also manage risk during implementation. If you doubt a partner’s ability to meet an aggressive delivery schedule, for example, you can build in incentives for on-time completion, penalties for delays, or both.
4. A possible “winner’s curse” situation. In auctions and competitive bidding, the winning bidder often pays more than the asset is ultimately worth—a phenomenon known as the winner’s curse. As anticipated benefits fail to materialize, the “winner” may come to regret the victory.
In an interview with Fortune, Zacks Investment Management president Mitch Zacks characterized the AT&T–Time Warner deal as a textbook example: “Essentially, what is happening is AT&T is paying more for Time Warner than any other entity is willing to pay. . . . So by definition, it’s overpaying.”
Legendary dealmaker Bruce Wasserstein, who died in 2009, advised negotiators to guard against the winner’s curse—or “winner’s dilemma,” as he preferred to call it—by asking whether they possess a comparative advantage that justifies a premium bid. Such advantages might include unique data, capabilities, or strategic positioning. AT&T argued that its wireless scale and distribution capabilities gave it a distinctive edge in extracting value from Time Warner’s content. Whether that advantage proved real—or illusory—was a question only time could answer.
What are your thoughts on the negotiation techniques used in this high-profile case?
This is an excerpt from an article in the February 2017 issue of the Negotiation Briefings newsletter.
Claim your FREE copy: Negotiation Skills
Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.
