Hewlett-Packard recently purchased 3Par, a computer storage system company, for $33 per share ($2.3 billion). Dell had engaged in an 18-day bidding war with H.P. but in the end decided not to counter H.P.’s winning offer. What can we learn from this?
Evaluating your and your counterpart’s Plan Bs (what will happen to both sides if you don’t do a deal with your counterpart) is a critical step in preparing for a negotiation. Why?
Because it tells you when to walk. If your best alternative to that deal is better than the deal on the table, don’t take the deal on the table. Knowing your best Plan B is better than your counterpart’s last move prevents you from making an agreement you should reject.
And if the deal on the table is better than your best alternative (your best Plan B), take the deal. Knowing your best Plan B is worse than your counterpart’s last best offer tells you to sign the deal.
Here, we can assume Dell evaluated its Plan B – not purchasing 3Par at the price required – and decided that walking away and not bidding any more was its best course of action.