Business negotiators across industries can draw valuable lessons from mergers and acquisitions (M&A) negotiation strategy, including how to select the right negotiating partners, when and how to account for the influence of outside parties, and how to prepare for effective deal implementation.

1. Who might influence a reluctant counterpart?

It’s a common problem in business negotiation: You have a vision for a deal that you expect to benefit both parties, yet the other side won’t even come to the table. In their book 3-D Negotiation: Powerful Tools to Change the Game in Your Most Important Deals, David Lax and James Sebenius suggest that an indirect route to your target may be the best strategy. Through a process they call backward mapping, you can think in reverse about how to reach your preferred outcome and then ensure you are approaching negotiating partners in the right order.

Backward mapping can be a pivotal aspect of M&A negotiation strategy. Consider what happened when US Airways CEO Doug Parker called American Airlines head Tom Horton to discuss a possible merger on November 29, 2011, the very day American filed for bankruptcy, as reported by Mike Spector in the Wall Street Journal. Horton said his airline needed to spend time reorganizing and renegotiating its labor contracts before focusing on a deal.

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Undeterred, Parker touted the benefits of a merger with American on Wall Street, and US Airways president Scott Kirby launched an informal contract negotiation with American’s pilots union. On April 20, 2012, US Airways announced that all of American’s large unions supported a merger between the two airlines. The same day, US Airways issued a formal merger proposal to American and its creditors.

This time, American agreed to explore a possible consolidation. Confidential negotiations led to a new proposal from US Airways: American’s shareholders, creditors, unions, and employees would get 70% ownership of a combined airline, US Airways’ shareholders would get 30%, and Parker would run the company.

In February 2013, the companies unveiled their merger, which was widely praised as a critical step in industry consolidation. Pivotal to the deal was CEO Parker’s recognition of the importance of negotiating with American’s pilots first. Their enthusiasm for a merger made it difficult for Horton to resist negotiations with American.

2. How will the deal affect your rivals?

Office Depot’s intended purchase of OfficeMax, announced on February 20, 2013, was widely praised as an important step toward consolidating the office-supply industry, which was suffering from a glut of stores amid competition from Internet retailers such as Amazon.

The day after the merger announcement, shares of rival Staples rose 13%, a market-capitalization gain of $1.1 billion—about three times the amount of the combined $314 million gain for Office Depot and OfficeMax. This relief for Staples didn’t last over time, but it points to the importance in M&A negotiation strategy of considering how the outcome of a negotiation will affect outside parties, including rivals. Assess in advance whether there will be enough value to go around—or if you could end up losing out to a newly bolstered competitor.

3. What will happen next?

If negotiating a merger between two complex corporations seems difficult, integrating the companies after the deal closes is typically even harder. When Office Depot and OfficeMax announced their partnership—prematurely, because of a third-party error—they had yet to resolve key questions, such as the name of the combined company, who would lead it, and where it would be headquartered.

More often, companies flesh out organizational plans during the negotiation process. US Airways and American, for instance, agreed that US Airways’ Parker would lead the newly christened American Airlines Group from American headquarters, and the company had a head start on labor negotiations.

But the consolidation challenges were daunting. The carriers needed to take American out of bankruptcy, pass a Justice Department antitrust review, and integrate their massive operations and differing cultures, all while facing competition from rivals United and Delta Airlines.

In Horton’s words, the deal represented “great value creation, but it’s all dependent on execution.” Acknowledging such realities is critical to M&A negotiation strategy and any new partnership, so be sure to take a long-term view of possible challenges before closing a deal.

3 Takeaways from M&A Negotiation Strategy

• Map backwards. When faced with a reluctant counterpart, think about what other parties you might approach first. The agreements you reach with these parties may help you make inroads with your ultimate target.
• Anticipate rivals’ reactions. In the midst of your negotiations, take time to analyze how third parties in your sphere may be affected—both positively and negatively—by your deal.
• Look beyond the contract. Because the deal isn’t done when the ink dries, devote a significant percentage of your negotiation time to planning how you will implement your agreement.

What lessons have you learned from M&A negotiation strategy in the news?

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We recently had a question about some common negotiation mistakes people make while they’re still preparing for a negotiation. Kessely Hong, Senior Lecturer in Public Policy and the Faculty Chair of the MPA Programs and the Mid-Career MPA Summer Program at the Harvard Kennedy School, took time to discuss these mistakes and steps we can take to avoid them.

Here’s the question: I have attended negotiation training sessions that have stressed the importance of thorough preparation. I can see why this is valuable, but I have difficulty following through on this advice. Whenever I am facing an important negotiation, I resolve to gather information and plan my strategy beforehand. Yet amid all the other demands and distractions, I inevitably fall behind and end up feeling underprepared. Do you have any advice to help keep me on track?

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.

4 Ways to recognize and counteract the negotiation mistakes we make in the planning stage

Whenever you find yourself breaking resolutions and generally acting against your own long-term interests, you are engaged in a negotiation with yourself. Scholars Drew Fudenberg and David K. Levine use the metaphor of “dual selves” that reside within each of us. Specifically, it can be helpful to think of the part of yourself that considers your long-term goals and well-being as your “should” self and the part that is drawn toward short-term pleasures (or away from short-term pain) as your “want” self.

The temporary urges of our “want” selves often overwhelm the lofty long-term goals of our “should” selves: junk-food cravings crowd out plans for a healthy diet; we avoid getting a painful flu shot despite our best intentions. The “want” self’s dominance results from the common tendency to give much more weight to present concerns than to future ones when making decisions.

You can limit the negotiation mistakes your “want” self will make by giving your “should” self a stronger voice in negotiations.

1. Create an appealing choice. Honor your long-term goals and try to meet your short-term interests, as well. Try to distract your “want” self (and your colleagues) from the hard work of preparing to negotiate by making the task more enjoyable and sociable. Instead of meeting around a conference table, go offsite to a trendy restaurant or hold a contest to see who can brainstorm the best ideas.

2. “Tie yourself to the mast.” In The Odyssey, Homer’s protagonist Odysseus comes up with an ingenious solution to avoid temptation: He orders his men to tie him to the mast of his ship so that he will be physically unable to pursue the luring calls of the Sirens. Similarly, you can reduce the availability of alternatives that commonly distract the “want” self away from your goal. Devote a set time each day to prepare, during which you turn off your phone, work from a location without an Internet connection, or lock your door so no one can interrupt you. The point is to predict what usually distracts you and make it impossible for the distraction to intrude.

3. Increase the immediate negative consequences of failure. Negotiators usually try to increase their ability to walk away from a subpar agreement by taking steps to improve their alternatives. When negotiating with yourself, however, you may actually want to worsen your own alternatives by imposing an immediate penalty on yourself for failing to achieve your goal—something that will catch the attention of your “want” self.

Suppose you find the costs of not preparing to negotiate—namely, somewhat worse negotiation outcomes—to be so vague and distant as to be minimal. What if the choice to not prepare would instead result in immediate embarrassment with possible career repercussions? You could schedule a meeting to present your negotiation strategy to your organization’s senior leadership for a few weeks before your external negotiation. Knowing that your bosses will judge you harshly if you make negotiation mistakes or don’t have a stellar, data-based plan should convince your “want” self to prepare to avoid the embarrassment.

4. Set firm deadlines. Firm deadlines are crucial to make the threat of negative consequences credible. When your “should” self selects a deadline, ensure that your “want” self cannot alter it.

How do you recognize and avoid negotiation mistakes like these?

Q: I have attended negotiation training sessions that have stressed the importance of thorough preparation. I can see why this is valuable, but I have difficulty following through on this advice. Whenever I am facing an important negotiation, I resolve to gather information and plan my strategy beforehand. Yet amid all the other demands and distractions in my life, I inevitably fall behind and end up feeling underprepared. Do you have any advice to help keep me on track?

A: Whenever you find yourself breaking resolutions and generally acting against your own long-term interests, you are engaged in a negotiation with yourself. Scholars Drew Fudenberg and David K. Levine use the metaphor of “dual selves” that reside within each of us. Specifically, it can be helpful to think of the part of yourself that considers your long-term goals and well-being as your “should” self and the part that is drawn toward short-term pleasures (or away from short-term pain) as your “want” self. The temporary urges of our “want” selves often overwhelm the lofty long-term goals of our “should” selves: junk-food cravings crowd out plans for a healthy diet; we avoid getting a painful flu shot despite our best intentions. The “want” self’s dominance results from the common tendency to give much more weight to present concerns than to future ones when making decisions.

You can prepare to give your “should” self a stronger voice in negotiations with your “want” self by considering the following suggestions.

1. Create an appealing choice so that honoring your long-term goals meets your short-term interests. Try to distract your “want” self (and your colleagues) from the hard work of preparing to negotiate by making the task more enjoyable and sociable. Instead of meeting around a conference table, go offsite to a trendy restaurant or hold a contest to see who can brainstorm the best ideas.

2. “Tie yourself to the mast.” In The Odyssey, Homer’s protagonist Odysseus comes up with an ingenious solution to avoid temptation: He orders his men to tie him to the mast of his ship so that he will be physically unable to pursue the luring calls of the Sirens. Similarly, you can reduce the availability of alternatives that commonly distract the “want” self away from your goal. Devote a set time each day to prepare, during which you turn off your phone, work from a location without an Internet connection, or lock your door so no one can interrupt you. The point is to predict what usually distracts you and make it impossible for the distraction to intrude.

3. Increase the immediate negative consequences of failure. Negotiators usually try to increase their ability to walk away from a subpar agreement by taking steps to improve their alternatives. When negotiating with yourself, however, you may actually want to worsen your own alternatives by imposing an immediate penalty on yourself for failing to achieve your goal—something that will catch the attention of your “want” self. Suppose you find the costs of not preparing to negotiate—namely, somewhat worse negotiation outcomes—to be so vague and distant as to be minimal. What if the choice to not prepare would instead result in immediate embarrassment with possible career repercussions? You could schedule a meeting to present your negotiation strategy to your organization’s senior leadership for a few weeks before your external negotiation. Knowing that your bosses will judge you harshly if you do not have a stellar, data-based plan should convince your “want” self to prepare to avoid the embarrassment.

4. Set firm deadlines. Firm deadlines are crucial to make the threat of negative consequences credible. When your “should” self selects a deadline, ensure that your “want” self cannot alter it.

Kessely Hong
Lecturer in Public Policy
Harvard Kennedy School
Harvard University

It’s hard to imagine a situation in which negotiating counterparts would choose to sacrifice hundreds of millions of dollars rather than reach agreement. But this is the choice that New York City and its teachers union, the United Federation of Teachers (UFT), made in January when they declared impasse on a new teacher evaluation system.

Back to basics
In 2010, New York State passed a law requiring its school districts to replace their old teacher-evaluation systems, which were widely criticized for keeping poor teachers on the job, with more stringent systems that would identify ineffective teachers and remove them from schools.

The law charged local school districts and their unions with specifying certain aspects of their new systems by January 17, 2013. Districts that reached agreement on new systems would be eligible for millions in state aid and grants.

New York City stood to gain about $250 million in aid and $200 million in grants, a 4% overall increase in state aid. But the talks were expected to be difficult because of the frosty relations between the UFT and New York mayor Michael Bloomberg. The union, which had been without a contract since 2009, had declined to endorse the mayor in his reelection campaign that year.

School yard taunting
As 2012 drew to a close, the city and the UFT were indeed deadlocked. On December 27, the city filed a complaint with the state labor board, accusing the union of failing to bargain in good faith and trying to “extort” the city by negotiating topics unrelated to teacher evaluations, such as teacher pay. Union president Michael Mulgrew responded that the union had a right to discuss a multitude of issues, since the evaluation system would be part of a new contract.

The union also launched a television ad campaign accusing Bloomberg of “going after teachers again.” And with Bloomberg reaching the end of his final term in office, Mulgrew suggested in an interview that the union hoped to have a better relationship with New York’s next mayor.

A mediator had preliminary meetings with the interested parties to form the outlines of an agreement, but Bloomberg officials reportedly canceled on the day of the scheduled mediation.

The final bell
On January 17, the day of the deadline, the two sides separately announced that a final, late-night negotiating session had collapsed. Bloomberg maintained that the union had scuttled the deal with last-minute demands, such as a “sunset clause” that would extend the dismissal process for ineffective teachers. Mulgrew insisted that the city had earlier agreed to a sunset clause.

Mulgrew also maintained that he shook hands on a deal with education officials early on the morning of January 17. But soon after, schools chancellor Dennis M. Walcott called to report that “the boss”—Bloomberg—“ says no deal.”

Bloomberg traveled to Albany to urge the New York State Legislature to prevent the city from losing $450 million in state funds. While at the capitol, the mayor took the opportunity to deride evaluation systems put in place by other districts.

New York governor Andrew Cuomo said the state would not reverse course on the funding. But a judge temporarily blocked Cuomo from withholding the aid, and Cuomo ultimately decided to impose an evaluation system on New York City if it can’t reach a deal with the UFT by a new deadline: June 1.

It’s hard to imagine a situation in which negotiating counterparts would choose to sacrifice hundreds of millions of dollars rather than reach agreement. But this is the choice that New York City and its teachers union, the United Federation of Teachers (UFT), made in January when they declared impasse on a new teacher evaluation system.

Back to basics
In 2010, New York State passed a law requiring its school districts to replace their old teacher-evaluation systems, which were widely criticized for keeping poor teachers on the job, with more stringent systems that would identify ineffective teachers and remove them from schools.

The law charged local school districts and their unions with specifying certain aspects of their new systems by January 17, 2013. Districts that reached agreement on new systems would be eligible for millions in state aid and grants.

New York City stood to gain about $250 million in aid and $200 million in grants, a 4% overall increase in state aid. But the talks were expected to be difficult because of the frosty relations between the UFT and New York mayor Michael Bloomberg. The union, which had been without a contract since 2009, had declined to endorse the mayor in his reelection campaign that year.

School yard taunting
As 2012 drew to a close, the city and the UFT were indeed deadlocked. On December 27, the city filed a complaint with the state labor board, accusing the union of failing to bargain in good faith and trying to “extort” the city by negotiating topics unrelated to teacher evaluations, such as teacher pay. Union president Michael Mulgrew responded that the union had a right to discuss a multitude of issues, since the evaluation system would be part of a new contract.

The union also launched a television ad campaign accusing Bloomberg of “going after teachers again.” And with Bloomberg reaching the end of his final term in office, Mulgrew suggested in an interview that the union hoped to have a better relationship with New York’s next mayor.

A mediator had preliminary meetings with the interested parties to form the outlines of an agreement, but Bloomberg officials reportedly canceled on the day of the scheduled mediation.

The final bell
On January 17, the day of the deadline, the two sides separately announced that a final, late-night negotiating session had collapsed. Bloomberg maintained that the union had scuttled the deal with last-minute demands, such as a “sunset clause” that would extend the dismissal process for ineffective teachers. Mulgrew insisted that the city had earlier agreed to a sunset clause.

Mulgrew also maintained that he shook hands on a deal with education officials early on the morning of January 17. But soon after, schools chancellor Dennis M. Walcott called to report that “the boss”—Bloomberg—“ says no deal.”

Bloomberg traveled to Albany to urge the New York State Legislature to prevent the city from losing $450 million in state funds. While at the capitol, the mayor took the opportunity to deride evaluation systems put in place by other districts.

New York governor Andrew Cuomo said the state would not reverse course on the funding. But a judge temporarily blocked Cuomo from withholding the aid, and Cuomo ultimately decided to impose an evaluation system on New York City if it can’t reach a deal with the UFT by a new deadline: June 1.

Imagine that you’re a freelance marketing consultant who is negotiating the conditions of a long-term assignment with a new client. As you think about what you will charge, you set a goal that you consider to be challenging but not impossible. The project manager balks when you first quote your rate, but you end up negotiating a price and a scope of service that still please you and that seem acceptable to the client.

To your dismay, however, the project manager resists your advice during the early stages of the assignment and, at times, seems downright hostile toward you. The manager ends up taking you off the project prematurely, saying only that the relationship wasn’t a good fit.

There could be many reasons this arrangement failed, ranging from personality differences to unmet expectations. But it is also possible that your high aspirations prior to the negotiation set you up for a partnership that needed to be managed with particular care, suggest researchers Lei Lai (Tulane University), Hannah Riley Bowles (Harvard Kennedy School), and Linda Babcock (Carnegie Mellon University) in a new study.

Abundant research supports the immediate benefits of aiming high in negotiation. But, as we discuss here, challenging goals may negatively affect the relationships that spring from negotiated deals.

The positives of aiming high
When negotiators set specific, challenging goals (such as “I’m going to try to negotiate a rate that’s 10% higher than I’ve earned on past projects”), they consistently achieve better objective outcomes for themselves than do those who set lower or vague goals (such as “I’ll do my best”), researchers Deborah C. Zetik and Alice F. Stuhlmacher of DePaul University found in one review of goal-setting research. Negotiators with relatively high aspirations also contribute to more efficient agreements for both sides.

Challenging goals prompt negotiators to work harder than more modest goals do. Moreover, the simple act of visualizing and committing to a goal helps us anticipate how we will attain it, according to University of Pennsylvania professor Maurice E. Schweitzer.

Goals and a backlash
Despite these beneficial qualities, high aspirations can trigger an unanticipated backlash effect, according to the results of Lai and her colleagues’ study.

The research team assigned pairs of undergraduate students to play the roles of supplier (the seller) and motorcycle manufacturer (the buyer) in a simulated negotiation over a single issue, the price per unit for a special order of headlights. Prior to negotiating, some of the buyers were encouraged to aim for a high target purchase price; the rest were encouraged to adopt a more modest goal. Buyers were encouraged to make the first offer, and sellers were instructed to wait for their buyers’ offers.

After negotiating, those playing the role of seller were given another, supposedly unrelated task: allocating $10 between themselves and another player. Specifically, they were asked to state how much, if any, of the $10 they would give to the person with whom they had just negotiated (the buyer). They were also asked how much, if any, of $10 they would give to an unknown, anonymous participant.

Buyers who set high aspirations in the simulation negotiated significantly better prices for themselves than did those who aimed lower. However, sellers found the buyers who set high goals to be less likable than those who set lower goals, and, as a result, were less willing to cooperate with them in the future.

Moreover, when it came to allocating $10 after the negotiation had ended, sellers who had negotiated with high-aiming participants were much less generous toward their former counterparts than they were toward unknown participants. In fact, 41% of these sellers gave none of the $10 to their high-aiming counterparts, and only 8% settled on a 50-50 split. Meanwhile, 36% of sellers whose counterparts aimed lower decided on a 50-50 split with these parties.

Set high goals for success
Lai and her team’s findings hint at a dark side to setting high goals in negotiation: namely, high goals seem to work so well that your counterparts may resent your success. As a result, they may find you unlikable, be reluctant to work with you in the future, and behave selfishly toward you when given a chance.

In one-off negotiations where you don’t expect to cross paths with your negotiating counterpart again, it may matter little if he doesn’t like you. But most negotiations, of course, carry at least the possibility of future interactions. If you are happy with your experience negotiating for a new car, for example, you may recommend the dealership to friends or choose to return when it comes time to buy your next car. Thus, it is typically important to look for ways to balance your desire to meet a high goal with the need to build a good relationship.

There are several ways you can try to manage your counterpart’s satisfaction—and odds of cooperating with you in the future—while still aiming high.

• Manage wins and losses. Research by Nobel laureate Daniel Kahneman and the late Amos Tversky shows that people prefer to experience several “wins” rather than one, but show the opposite preference for losses. Thus, make concessions, issue rewards, and deliver good news in stages rather than all at once—but convey bad news in one big chunk.
• Delay acceptance. A counterpart’s quick acceptance of an offer can cause a negotiator to regret that she didn’t ask for more, Adam D. Galinsky of Columbia University and his colleagues have found in their research. For this reason, even if the other side quickly acquiesces to your high goals, try to prolong the negotiation a bit to improve her overall satisfaction.
• Hide your glee. Negotiators tend to be less interested in working again with counterparts who express satisfaction with their results than with those who seem less satisfied, researcher Jared R. Curhan and his colleagues have found. Your satisfaction may lead your counterpart to assume that you took advantage of him. So if you have success meeting your high goals, keep your exuberance to a minimum.

Resource: “Social Costs of Setting High Aspirations in Competitive Negotiation,” by Lei Lai, Hannah Riley Bowles, and Linda Babcock. Negotiation and Conflict Management Research, 2013.

Satisfied employees, satisfied customers?
In a new study, Shu-Cheng Steve Chi of the National Taiwan University and his colleagues find that the degree to which salespeople enjoy their work has a significant impact on customer satisfaction with the outcome of sales negotiations.

The study examined negotiations over the price of eyewear between salespeople and customers at the stores of a large Taiwanese eyeglasses company. Salespeople who reported high levels of job satisfaction and who spent a relatively long amount of time introducing the store’s products and services achieved relatively high levels of customer satisfaction. In fact, employee satisfaction was more effective than price concessions at promoting customer satisfaction. By contrast, salespeople who were relatively unsatisfied with their jobs were unable to capitalize on the time they spent introducing products and services to customers.

The results suggest that organizations may be able to transform one-off deals with customers into lasting relationships by taking steps to improve employee satisfaction, particularly by training employees in effective communication strategies.

Resource: “Beyond Offers and Counteroffers: The Impact of Interaction Time and Negotiator Job Satisfaction on Subjective Outcomes in Negotiation,” by Shu-Cheng Steve Chi, Raymond A. Friedman, and Huei-Lin Shih. Negotiation Journal, January 2013.

When misery is myopic
Past research by Jennifer S. Lerner of the Harvard Kennedy School and others has found that “misery is not miserly”—namely, that sad decision makers will pay more for a commodity than will those in a neutral state. In a new study, Lerner and her colleagues find evidence of “myopic misery”: that is, sadness triggers impatience and, correspondingly, a preference among decision makers for receiving a smaller reward immediately rather than a larger reward in the future.

In one experiment, as compared with participants who were induced to feel disgusted or neutral, participants who were induced to feel sad (by watching a sad video) were more impatient and showed a stronger preference for an immediate reward (such as $11) over a larger future reward (such as $25 in one week). Sadness leads people to prefer immediate gratification over long-term benefits, the results of this and the team’s other experiments suggest.

The tendency to “want it now” is common among negotiators and other decision makers, but we should be especially attuned to the danger of making significant financial decisions when we feel sad.

Resource: “The Financial Costs of Sadness,” by Jennifer S. Lerner, Ye Li, and Elke U. Weber. Psychological Science, 2013.

Searching for selfless agents
Negotiators who work as agents or organizational representatives often face choices between doing what is in their own best interest and doing what would most benefit the group or individual they represent. A research team from the University of Amsterdam, led by Hillie Aaldering, looked specifically at whether people who are naturally more selfless—“pro-social,” in psychological parlance—behave differently than those who are more “pro-self” when negotiating on behalf of others.

As compared with pro-self representatives, pro-social representatives sacrificed their own interests more in a negotiation to benefit their constituencies, the researchers found. Pro-social individuals were even more selfless in favor of their groups when they had more to gain personally by helping their adversaries. By contrast, pro-self representatives were willing to betray their constituencies and the other side to achieve personal financial gains.

The results suggest that organizations may want to appoint people who seem particularly oriented toward helping others to negotiate on their behalf, as such individuals may be less susceptible to the well-documented tendency to put oneself above one’s group.

Resource: “Interest (Mis)alignments in Representative Negotiations: Do Pro-social Agents Fuel or Reduce Inter-group Conflict?” by Hillie Aaldering, Lindred L. Greer, Gerben A. Van Kleef, and Carsten K. W. De Dreu. Organizational Behavior and Human Decision Processes, 2013.

Satisfied employees, satisfied customers?
In a new study, Shu-Cheng Steve Chi of the National Taiwan University and his colleagues find that the degree to which salespeople enjoy their work has a significant impact on customer satisfaction with the outcome of sales negotiations.

The study examined negotiations over the price of eyewear between salespeople and customers at the stores of a large Taiwanese eyeglasses company. Salespeople who reported high levels of job satisfaction and who spent a relatively long amount of time introducing the store’s products and services achieved relatively high levels of customer satisfaction. In fact, employee satisfaction was more effective than price concessions at promoting customer satisfaction. By contrast, salespeople who were relatively unsatisfied with their jobs were unable to capitalize on the time they spent introducing products and services to customers.

The results suggest that organizations may be able to transform one-off deals with customers into lasting relationships by taking steps to improve employee satisfaction, particularly by training employees in effective communication strategies.

Resource: “Beyond Offers and Counteroffers: The Impact of Interaction Time and Negotiator Job Satisfaction on Subjective Outcomes in Negotiation,” by Shu-Cheng Steve Chi, Raymond A. Friedman, and Huei-Lin Shih. Negotiation Journal, January 2013.

When misery is myopic
Past research by Jennifer S. Lerner of the Harvard Kennedy School and others has found that “misery is not miserly”—namely, that sad decision makers will pay more for a commodity than will those in a neutral state. In a new study, Lerner and her colleagues find evidence of “myopic misery”: that is, sadness triggers impatience and, correspondingly, a preference among decision makers for receiving a smaller reward immediately rather than a larger reward in the future.

In one experiment, as compared with participants who were induced to feel disgusted or neutral, participants who were induced to feel sad (by watching a sad video) were more impatient and showed a stronger preference for an immediate reward (such as $11) over a larger future reward (such as $25 in one week). Sadness leads people to prefer immediate gratification over long-term benefits, the results of this and the team’s other experiments suggest.

The tendency to “want it now” is common among negotiators and other decision makers, but we should be especially attuned to the danger of making significant financial decisions when we feel sad.

Resource: “The Financial Costs of Sadness,” by Jennifer S. Lerner, Ye Li, and Elke U. Weber. Psychological Science, 2013.

Searching for selfless agents
Negotiators who work as agents or organizational representatives often face choices between doing what is in their own best interest and doing what would most benefit the group or individual they represent. A research team from the University of Amsterdam, led by Hillie Aaldering, looked specifically at whether people who are naturally more selfless—“pro-social,” in psychological parlance—behave differently than those who are more “pro-self” when negotiating on behalf of others.

As compared with pro-self representatives, pro-social representatives sacrificed their own interests more in a negotiation to benefit their constituencies, the researchers found. Pro-social individuals were even more selfless in favor of their groups when they had more to gain personally by helping their adversaries. By contrast, pro-self representatives were willing to betray their constituencies and the other side to achieve personal financial gains.

The results suggest that organizations may want to appoint people who seem particularly oriented toward helping others to negotiate on their behalf, as such individuals may be less susceptible to the well-documented tendency to put oneself above one’s group.

Resource: “Interest (Mis)alignments in Representative Negotiations: Do Pro-social Agents Fuel or Reduce Inter-group Conflict?” by Hillie Aaldering, Lindred L. Greer, Gerben A. Van Kleef, and Carsten K. W. De Dreu. Organizational Behavior and Human Decision Processes, 2013.

The $23 billion acquisition of H.J. Heinz. Michael Dell’s planned $24 billion buyout of his namesake computer company. The $11 billion merger of American Airlines and US Airways. Office Depot’s $976 million, all-stock acquisition of OfficeMax.

These high-flying deals were announced one after the other this past February. The mad rush to consolidate and partner signaled that Wall Street dealmakers and corporate executives are regaining confidence in the wake of the global financial crisis.

Whether or not we’re entering another mergers and acquisitions (M&A) boom remains to be seen. But, for the moment at least, a rebounding stock market and banking system, fattening corporate coffers, and greater political certainty in the United States and Europe seem to have culminated in a burst of creative dealmaking.

What can negotiating professionals take away from the recent M&As and buyouts? In this article, we present three key questions that are important to ask when you are facing a significant negotiation, and we explain how parties involved in some of the most recent deals answered them.

1. Who might influence a reluctant counterpart?
It’s a common problem in negotiation: You have a vision for a deal that will take both sides to the next level, yet the other side won’t even come to the table. In such situations, persuasion techniques and other communication skills will take you only
so far.

In their book 3-D Negotiation: Powerful Tools to Change the Game in Your Most Important Deals (Harvard Business School Press, 2006), David A. Lax and James K. Sebenius suggest that an indirect route to your target may be the best strategy. Through a process they refer to as backward mapping, you can think in reverse about how to reach your preferred outcome and then ensure that you are approaching negotiating partners in the right order.

That’s what US Airways CEO Doug Parker appears to have done after American Airlines head Tom Horton initially rebuffed his advances, as reported by Mike Spector in the Wall Street Journal. Parker first called Horton to discuss a possible merger on November 29, 2011, the very day that American filed for bankruptcy. But Horton said his airline needed to spend time reorganizing and renegotiating its labor contracts before focusing on a deal.

Undeterred, Parker launched presentations on Wall Street to tout the benefits of a merger with American. And in March 2012, US Airways president Scott Kirby had a pivotal meeting with Captain David Bates, then the president of American’s pilots union. It was no secret that American’s pilots were unhappy with their company’s management, which was pressing them for pay and benefit cuts. Kirby launched informal contract negotiations with the pilots by outlining how US Airways would treat American’s union members. Bates was intrigued. US Airways’ Parker and Kirby then traveled for a secret meeting with the board of American’s pilots union in Dallas.

On April 20, catching Horton off guard, US Airways announced that all of American’s large unions supported a merger between the two airlines. The same day, US Airways issued a formal merger proposal to American and its creditors.

After initially ignoring the offer, American agreed to explore a possible consolidation, with its creditors serving as mediators. Confidential negotiations led to a new proposal from US Airways in November: American’s shareholders, creditors, unions, and employees would get 70% ownership of a combined airline, US Airways’ shareholders would get 30%, and Parker would run the company.

In December, the airlines and their pilots unions spent 15 intense days negotiating detailed agreements on how to integrate their workforces. Thanks to concessions from the unions, new labor contracts are expected to save American hundreds of millions of dollars annually. In February 2013, the two companies unveiled their merger, which was widely praised as a critical step in industry consolidation and seems likely to receive regulatory approval.

Pivotal to US Airways’ success was CEO Parker’s recognition of the importance of negotiating with American’s pilots first. Their enthusiasm for a merger and new management made it difficult for Horton to continue resisting negotiations with American.

2. How will the deal affect your rivals?
Office Depot’s intended purchase of OfficeMax, announced on February 20, was widely praised as an important step toward consolidating the office-supply industry, which has suffered from a glut of stores in the midst of competition from Amazon.com and other Internet retailers, and declining demand for paper and ink.

Somewhat lost in the praise was the potential impact of Office Depot and OfficeMax’s merger on their rival, Staples. The day after the merger announcement, shares of Staples rose 13%. That marked a market-capitalization gain of $1.1 billion—about three times the amount of the combined $314 million gain for Office Depot and OfficeMax.

“If there are benefits from this office-supply-store merger, investors seem to be saying that they are going to Staples,” wrote Justin Lahart in the Wall Street Journal. The merger known as “OfficeOffice” is likely to close stores and lessen the pressure of market over saturation on Staples, which could also snare new corporate customers if the integration gets off to a rocky start.

This relief for Staples may not last, given industry trends, but it does point to the importance of considering how the outcome of your negotiation will affect outside parties, including your rivals. Will benefits accrued by outside parties outweigh any gains you expect to receive? Is it possible that these benefits will allow the outsider to sabotage your best-laid plans? Assess in advance whether there will be enough value to go around—or if you could end up losing out to a newly bolstered competitor.

3. What will happen next?
If negotiating a merger between two complex corporations seems difficult, integrating the companies is even harder.

When Office Depot and Office- Max announced their partnership, they had yet to resolve a number of key questions, such as what the combined company would be called, who would lead it, and where it would be located. In part, the lack of details can be attributed to the fact that the merger was accidentally announced prematurely because of a third-party error. Office Depot then had to scramble to put together a public announcement without taking the time to negotiate the implementation stage.

More often, companies flesh out basic organizational plans during the negotiation process. US Airways and American, for instance, agreed that US Airways’ Parker will lead the newly christened American Airlines Group from American headquarters in Fort Worth, Texas. And, as noted earlier, the company has a head start on labor negotiations.

But the challenges of this consolidation are daunting, as Jack Nicas reports in the Wall Street Journal. The carriers must take American out of bankruptcy, pass a Justice Department antitrust review, and integrate their massive operations—an effort expected to cost about $1.2 billion over three years. Meanwhile, rivals United and Delta Airlines could swoop in to steal any customers who face headaches from disruptions caused by the integration.

The merging companies also must navigate a potential culture clash between American’s buttoned-up style and US Airways’ more casual, off-the-cuff approach to business. The companies have appointed transition teams to try to get off to a strong start.

In Horton’s words, the deal represents “great value creation, but it’s all dependent on execution.” Acknowledging this reality is the first step in ensuring you don’t sign on to a deal that will fall flat during the implementation stage. Armed with a thorough, clear-eyed appraisal of what could happen next, you and your organization will be able to take a long-term view of likely challenges and better assess whether you should follow through with your plans