Bacchus is a successful winery, with 63 fully owned vineyards scattered throughout the US (although the majority are located in California). Bacchus was founded some 20 years ago, and appears to be a successful and growing company, as they have maintained a strong market share, specializing predominantly in high-end wines, although they also produce some moderately priced wines. Bacchus consistently wins prizes for their wines, both nationally and internationally, with their wines holding up well to French wines in Western Europe, at least outside of France itself. Tokyo Saki produces sake and rice wines, various Asian beers, as well as a line of alcoholic ginseng products (previously acquired from a Korean company). Tokyo Saki has strong market share within Asia, and has been making inroads as a novelty product, especially with its ginseng lines, in Europe and North America. At least part of the success of the ginseng lines has been due to the common belief that the ginseng root prevents the negative effects of alcohol on the system (such as liver damage due to over-consumption) and has long been recognized for its medicinal and curative powers in Asia, and more recently in Europe and North America. Serbian Steins & Stems specializes in fine decanters, wine glasses, and accessories. More importantly, however, they recently patented a new process that makes fine, delicate crystal and porcelain virtually indestructible, while maintaining its beauty and fragile appearance. This development has obvious customer appeal, but also significantly reduces the expenses associated with shipping breakage and the like. If costs can be reduced on the process, it may even be feasible to use the technique for bottling, making it attractive as a virtually unbreakable bottle for wine and beer, as well as other products. Tokyo Saki recently acquired a small stake in Serbian Steins & Stems, hoping to complement its offerings with the accessories that would appeal to the North American and European markets, thus bringing it into the merger talks in a three-way play. Last year, Bacchus management made overtures to Tokyo Saki in an effort to acquire their full line. Tokyo Saki declined, but encouraged a discussion of a possible merger between the companies, including the possibility of Serbian Steins & Stems for contemplation. Such a three way merger might provide Bacchus with complementary products and a presence in high-potential markets, while providing Tokyo Saki and Serbian Steins & Stems with product visibility and distribution systems that include the lucrative U.S. market. With the increasing popularity of fine wines and accessories, as well as "New Age" herbal medicines, such a three-way merger provides a particularly attractive opportunity. However, there are risks. For example, Bacchus is not sure of the potential market for rice wine, as it is frequently considered too sweet by most North Americans, and may not fit well with the sophisticated image that Bacchus has worked hard to develop. There does appear to be a fledgling market for Saki and Asian beer, and especially ginseng products, with considerable potential. The instability of the political situation in Eastern Europe is cause for concern as well, in any deal involving Serbian Steins & Stems, as is the recent Asian financial crisis. Given the risks and possible benefits, Bacchus has expressed cautious interest in the possibility of a three-way merger, and these discussions led to a satisfactory agreement on price, however, there are several issues that are yet to be resolved. These unresolved issues have led to the present meeting between your executive groups. In preparation for the meeting, the-2- three companies have already exchanged appropriate information and figures. Unfortunately, a merger between any two of the companies loses significant synergy and is considerably less attractive, hence it is important to negotiate an agreement that is satisfactory to all parties, if there is to be an agreement at all. At this time, the remaining issues to be resolved include: Stock ownership of the combined company that would result from a merger. The division of stock influences the amount of the annual profits that would accrue to each of the three respective companies. Ownership of the combined company is far and away the most critical issue in this negotiation for Bacchus. You believe that the difference in the appraised values of the companies' respective holdings entitles you to approximately 45% ownership of the combined company. Any deal that gives you less than 45% is simply unacceptable. Control, as represented by the number of voting seats on the 12-person executive board to be controlled by each company. While you are willing to have Tokyo Saki and Serbian Steins & Stems represented on your board, you not want to allow them so many seats that they can influence the direction of the company by voting as a block. This kind of voting block could destabilize the delicate dynamics of the Bacchus board decision-making, and, given the fragility of consensus, might allow the other companies more power than a simple seat tally would represent. Management. There are three management issues. First, is the management of the company in each country? In order to capitalize on the strategic synergies, management issues are key, and it will be critical to staff each location appropriately. It has not yet been established whether each location would continue to run as they have been running, or whether the Americans will select and send general managers, or whether there will be some form of exchange program or cross training of managers. You are pretty sure that the application of good old American cost controls and yield management will boost profits substantially. You would like to see experienced managers with a proven track record in place, but you are willing to consider other approaches to the consistency and management efficiency problems. The second issue is what to about Nikko Raspovliac, the son of the founder of Serbian Steins & Stems. It is your understanding that he is completely incompetent and abusive of his employees. In addition, there are rumors that he has been embezzling and that he is prone to bribe government officials and key employees of other organizations. Even if you could place him in a rather innocuous and powerless position (such as a position in name only) where his incompetence would not be a factor and his sticky fingered tendencies (if any) would be in check, it would still be problematic. Finally, the third issue is management incentives, or how to motivate the management teams towards the common goals of the merged companies. You prefer to pay your managers contingent on performance. Although you are willing to provide some salary, you prefer that a large part of each manager's compensation be paid in the form of a contingent bonus. Past experience indicates that this can substantially increase performance Form of the agreement is also quite important. You are dealing with the laws and norms of three different countries; hence it is important that the agreement be clearly specified. During the previous negotiations, it has seemed at times as if Serbian Steins & Stems has not been forthcoming or particularly helpful. In addition, given the-3- political situation and corruption of most Eastern European countries (perhaps a legacy of the days when they were under the control of the Soviets), you are worried about a potential lack of good faiththat they may not intend on honoring the agreement, if one is struck. It is also the case that corruption and bribes played a part in the economic problems recently experienced by Japan and the rest of Asia, so there is some concern there as well. You simply cannot afford to take a chance. Consequently, it is important to you that any agreement that does result from these negotiations be ironclad, so that they cannot back out or renege on the agreement. A contract that specifies not only the agreement, but also the penalties for failure to honor any part of the agreement is quite important to you. A final issue is timing - you need to close this deal and return as soon as possible to headquarters. Given other opportunities, a long, drawn-out negotiation will not be acceptable this time. If you turn in a written and signed contract in 20 minutes under the deadline, you will receive 20 points. If you turn in a written and signed contract in less than 20 minutes under deadline, but still under the deadline, you will receive 10 points. If you turn it in at the deadline, you will receive zero points. For every 10- minute period (or part thereof) that you exceed the deadline, you will lose 10 points.

Bacchus is a successful winery, with 63 fully owned vineyards scattered throughout the US (although the majority are located in California). Bacchus was founded some 20 years ago, and appears to be a successful and growing company, as they have maintained a strong market share, specializing predominantly in high-end wines, although they also produce some moderately priced wines. Bacchus consistently wins prizes for their wines, both nationally and internationally, with their wines holding up well to French wines in Western Europe, at least outside of France itself. Tokyo Saki produces sake and rice wines, various Asian beers, as well as a line of alcoholic ginseng products (previously acquired from a Korean company). Tokyo Saki has strong market share within Asia, and has been making inroads as a novelty product, especially with its ginseng lines, in Europe and North America. At least part of the success of the ginseng lines has been due to the common belief that the ginseng root prevents the negative effects of alcohol on the system (such as liver damage due to over-consumption) and has long been recognized for its medicinal and curative powers in Asia, and more recently in Europe and North America. Serbian Steins & Stems specializes in fine decanters, wine glasses, and accessories. More importantly, however, they recently patented a new process that makes fine, delicate crystal and porcelain virtually indestructible, while maintaining its beauty and fragile appearance. This development has obvious customer appeal, but also significantly reduces the expenses associated with shipping breakage and the like. If costs can be reduced on the process, it may even be feasible to use the technique for bottling, making it attractive as a virtually unbreakable bottle for wine and beer, as well as other products. Tokyo Saki recently acquired a small stake in Serbian Steins & Stems, hoping to complement its offerings with the accessories that would appeal to the North American and European markets, thus bringing it into the merger talks in a three-way play. Last year, Bacchus management made overtures to Tokyo Saki in an effort to acquire their full line. Tokyo Saki declined, but encouraged a discussion of a possible merger between the companies, including the possibility of Serbian Steins & Stems for contemplation. Such a three way merger might provide Bacchus with complementary products and a presence in high-potential markets, while providing Tokyo Saki and Serbian Steins & Stems with product visibility and distribution systems that include the lucrative U.S. market. With the increasing popularity of fine wines and accessories, as well as "New Age" herbal medicines, such a three-way merger provides a particularly attractive opportunity. However, there are risks. For example, whether or not Bacchus has topped out in its market expansion isn't clear. And the instability of the political situation in Eastern Europe is cause for concern as well, in any deal involving Serbian Steins & Stems. Given the risks and possible benefits, Bacchus has expressed cautious interest in the possibility of a three-way merger, and these discussions led to a satisfactory agreement on price, however, there are several issues that are yet to be resolved. These unresolved issues have led to the present meeting between your executive groups. In preparation for the meeting, the three companies have already exchanged appropriate information and figures. Unfortunately, a merger between any two of the companies loses significant synergy and is considerably less attractive; hence it is important to-2- negotiate an agreement that is satisfactory to all parties, if there is to be an agreement at all. At this time, the remaining issues to be resolved include: Stock ownership of the combined company that would result from a merger. The division of stock influences the amount of the annual profits that would accrue to each of the three respective companies. This issue is, of course, of very high importance to you. You believe that the division of stock ownership should be driven by the fact that you are bringing a totally new product line to the table, and that you have a much greater profit margin than anyone else does at the table. However, you are also aware of the fact that Bacchus has a considerably higher value, and that Serbian Steins & Stems brings something unique to the table. You believe that these differences entitle you to a minimum of 25% ownership of the combined company. Control, as represented by the number of voting seats on the 12-person executive board to be controlled by each company. It is extremely important to you that you have multiple members represented - enough to wield some level of power - on the executive board. This issue is a point of pride, as you explicitly not want to be "taken over" by Bacchus you desire a merger that is respectful of your identity and accomplishments. You worry that minimal representation could easily be intimidated and silenced on the board and would become "tokens" with little or no actual influence. You bring a unique product line - especially with the ginseng products, one that is highly saleable in multiple markets. This will invigorate Bacchus' currently rather stale lines. In addition, given your small ownership in Serbian Steins & Stems, you are clearly bringing a great deal to the table and your contributions should not be minimized. Management. There are three management issues. First, is the management of the company in each country? In order to capitalize on the strategic synergies, management issues are key, and it will be critical to staff each location appropriately. It has not yet been established whether each location would continue to run as they have been running, or whether the Americans will try to select and send general managers, or whether there will be some form of exchange program or cross-training of managers. However, it is extremely important that you have at least one Japanese manager in each location, otherwise you will be unable to appropriately monitor other components of your business and react quickly and appropriately to decisions that are not in Tokyo Saki's best interests. Your preference, of course, is to staff with Japanese mangers, but you realize that is not realistic. Yet, you also understand the importance of working within a socio-cultural network, and know that the locals have contact that your managers might lack. Hence, in lieu of Japanese representation, you will accept local management. The second issue is more troubling. That is what to about Nikko Raspovliac, the son of the founder of Serbian Steins & Stems. It is your understanding that he is an unrepentant womaniser, and there are even rumors that he may be involved with the drug trade. Unfortunately, you learned of all this after you originally purchased a stake in their business. Raspolivac's negative reputation will result in significant loss of face for your company in any public liaison (and you have debated ending the existing one if you can find a way out!). It is simply not acceptable to have someone at the helm whose reputation is so sullied. Finally, the third issue is management incentives, or how to motivate the management teams towards the common goals of the merged companies. You have always paid your managers an-3- attractive salary, yet Bacchus has suggested that they be paid contingent on performance. Although you are willing to provide a small contingent incentive, you know there are clearly differences in the different foci of the companies and that some are simply easier to make a profit at, and any manager accepting a "difficult" assignment would be penalized. In addition, you know that such differences will create status and power differences among the managers of the different divisions, which is simply unacceptable You strongly prefer no contingent incentives, as you want to continue the culture you have developed at Tokyo Saki, a culture that has served you very well indeed. If a competitive culture were instantiated, your past experience in Asia suggests that they refuse to help one another, or lobby for specific interests, which clearly could be to your detriment. In addition you know well that such a plan will substantially reduce the morale among the management team and create conflict and tension. Form of the agreement is also quite important. In your previous negotiations with Bacchus, it seemed as if they were completely unwilling to build any flexibility into the agreement. Yet, in merging the three companies, you are charting new territory, and having some flexibility - to accommodate the unexpected as it arises - is not only essential, but makes good business sense. Thus, it is important to you that any agreement struck is flexible, with adequate safeguards for accommodating the unexpected. In addition, you find Bacchus' insistence on penalties for minor accommodations in the contract to be repugnant and insulting, and will clearly damage the relationship among all parties. Your preference is for a contract that avoids threatening trust by specifying penalties that may never be needed. A final issue is status. It is quite important that you negotiate with those who are of equal (or greater) status to yourself; otherwise, it is clear that the other parties are not taking you seriously, if not insulting you. Negotiator status is an important indicator of the respect with which you and the company are viewed. If they send negotiators of superior status, then that indicates that the future relationship will be one of respect and in which parties will attempt to accommodate our company and its issues. If, however, the negotiators sent by Bacchus and Serbian Steins & Stems are of lesser status, it suggests that the long-term relationship will be one in which you and the company will be discounted and marginalized. You should use managerial rank as a proxy for status, such that a negotiator with no job experience has a status of zero; if they only had non-management experience, their status would be 1; lower management would be 2, mid level management 3, upper level management 4, and executive management 5. To compute your status score, you should use the following formula: [(Average Status of Tokyo Saki Negotiators) - (Average Status of other ` Negotiators) * (-10)]

Bacchus is a successful winery, with 63 fully owned vineyards scattered throughout the US (although the majority are located in California). Bacchus was founded some 20 years ago, and appears to be a successful and growing company, as they have maintained a strong market share, specializing predominantly in high-end wines, although they also produce some moderately priced wines. Bacchus consistently wins prizes for their wines, both nationally and internationally, with their wines holding up well to French wines in Western Europe, at least outside of France itself. Tokyo Saki produces sake and rice wines, various Asian beers, as well as a line of alcoholic ginseng products (previously acquired from a Korean company). Tokyo Saki has strong market share within Asia, and has been making inroads as a novelty product, especially with its ginseng lines, in Europe and North America. At least part of the success of the ginseng lines has been due to the common belief that the ginseng root prevents the negative effects of alcohol on the system (such as liver damage due to over-consumption) and has long been recognized for its medicinal and curative powers in Asia, and more recently in Europe and North America. Serbian Steins & Stems specializes in fine decanters, wine glasses, and accessories. More importantly, however, they recently patented a new process that makes fine, delicate crystal and porcelain virtually indestructible, while maintaining its beauty and fragile appearance. This development has obvious customer appeal, but also significantly reduces the expenses associated with shipping breakage and the like. If costs can be reduced on the process, it may even be feasible to use the technique for bottling, making it attractive as a virtually unbreakable bottle for wine and beer, as well as other products. Tokyo Saki recently acquired a small stake in Serbian Steins & Stems, hoping to complement its offerings with the accessories that would appeal to the North American and European markets, thus bringing it into the merger talks in a three-way play. Last year, Bacchus management made overtures to Tokyo Saki in an effort to acquire their full line. Tokyo Saki declined, but encouraged a discussion of a possible merger between the companies, including the possibility of Serbian Steins & Stems for contemplation. Such a three way merger might provide Bacchus with complementary products and a presence in high-potential markets, while providing Tokyo Saki and Serbian Steins & Stems with product visibility and distribution systems that include the lucrative U.S. market. With the increasing popularity of fine wines and accessories, as well as "New Age" herbal medicines, such a three-way merger provides a particularly attractive opportunity. However, there are risks. For example, Bacchus is not sure of the potential market for rice wine, as it is frequently considered too sweet by most North Americans, and may not fit well with the sophisticated image that Bacchus has worked hard to develop. Whether or not Bacchus has topped out in its market expansion isn't clear. There does appear to be a fledgling market for Saki and Asian beer, and especially ginseng products, with considerable potential. The impact of the recent Asian financial crisis on Japanese companies is also a concern. Given the risks and possible benefits, Bacchus has expressed cautious interest in the possibility of a three-way merger, and these discussions led to a satisfactory agreement on price, however, there are several issues that are yet to be resolved. These unresolved issues have led to the present meeting between your executive groups. In preparation for the meeting, the three-2- companies have already exchanged appropriate information and figures. Unfortunately, a merger between any two of the companies loses significant synergy and is considerably less attractive; hence it is important to negotiate an agreement that is satisfactory to all parties, if there is to be an agreement at all. At this time, the remaining issues to be resolved include: Stock ownership of the combined company that would result from a merger. The division of stock influences the amount of the annual profits that would accrue to each of the three respective companies. This issue is, of course, of very high importance to you. You believe that the division of stock ownership should be driven by the fact that you are bringing a totally new product line to the table, and your profit margins are outstanding. However, you are also aware of the fact that Bacchus has a considerably higher value, and that Tokyo Saki brings new lines to the table as well. Although somewhere close to 1/3 of the stock for each company is probably fair, you are also aware that others may not agree. However, all in all, you believe that what you bring to the table entitles you to minimum of 20% ownership of the combined company. Control, as represented by the number of voting seats on the 12-person executive board to be controlled by each company. It is extremely important to you that you have multiple members represented - enough to wield some level of power - on the executive board, as you are concerned about a potential voting block of the Americans and Japanese. In addition, this issue is a point of pride, as you explicitly not want to be "taken over" by Bacchus you desire a merger that is respectful of your identity and accomplishments. You worry that minimal representation could easily be intimidated and silenced on the board and would become "tokens" with little or no actual influence. You bring a unique product line - especially with your patented process, one that is highly saleable in multiple markets. This will complement Bacchus' currently rather stale lines. Clearly bringing a great deal to the table and your contributions should not be minimized. Management. There are three management issues. First, is the management of the company in each country? It has not yet been established whether each location would continue to run as they have been running, or whether the Americans will try to select and send general managers, or whether there will be some form of exchange program or cross-training of managers. However, it is extremely important that you have local managers for the Serbian Steins & Stems component of the merger, in order to capitalize on unique synergies available to you in your own locales. The second issue is even more important. Nikko Raspovliac, the son of the founder of Serbian Steins & Stems, was heir apparent to the business. It is critical that he keep his position at the helm of the Serbian operations, both as a matter of pride and identity, but also to ensure that the business continues to be profitable for the family that has owned it. Nikko has had some troubles in the past, but his days of sowing his wild oats are over. And he clearly knows the ropes and knows how to grease the wheels of the local officials in order to get things done and to get advantageous prices on raw materials and the like. Nevertheless, you expect some resistance over retaining Nikko to arise at the table. Finally, the third issue is management incentives, or how to motivate the management teams towards the common goals of the merged companies. You prefer to pay your managers contingent on performance. Although you are willing to provide some salary, you prefer that a large part of each manager's compensation be paid in the-3- form of a contingent bonus. Past experience indicates that this can substantially increase performance. Form of the agreement is also quite important. In your previous negotiations with Bacchus, it seemed as if they were completely unwilling to build any flexibility into the agreement. Yet, in merging the three companies, you are charting new territory, and having some flexibility - to accommodate the unexpected as it arises - is not only essential, but makes good business sense. Thus, it is important to you that any agreement struck is flexible, with adequate safeguards for accommodating the unexpected. In addition, you find Bacchus' insistence on penalties for minor accommodations in the contract to be repugnant and insulting, and will clearly damage the relationship among all parties. Your preference is for a contract that avoids threatening trust by specifying penalties that may never be needed. A final issue is status. Given the relative status of women in your society, as well as much of the world, you believe it appropriate that the other parties at the table send male negotiators, who are of superior relative status, and also generally higher up within the companies. If they send female negotiators, it may be a sign that they are not taking you quite as seriously, and, depending on the status of women within their own societies, perhaps insulting you. Negotiator status is an important indicator of the respect with which you and the company are viewed. If they send negotiators of superior status (males), then that indicates that the future relationship will be one of respect and in which parties will attempt to accommodate our company and its issues. If, however, the negotiators sent by Bacchus and Serbian Steins & Stems are of lesser status (females), it suggests that the long-term relationship will be one in which you and the company will be discounted and marginalized. You should compute the average status of your own negotiator(s) and of all other negotiators giving females a rank of one and males a rank of two and then apply the following formula: [(Average Status of Tokyo Saki Negotiators) - (Average Status of other Negotiators)) * (-20)]

Questions:

1. What did each of Bacchus Winery, Tokyo Saki, and Serbian Glass and Stems believe they could gain by virtue of a three-way international amalgamation?

2. What was the main item that had to be negotiated between the three parties?

3. What was Bacchus Winery mainly concerned about?

4. What would Bacchus Winery versus Tokyo Saki and Serbian Glass and Stems argue in order to win this main item?

5. With respect to the remuneration of the executives in the new amalgamated company, what was the problem that the three parties faced?