ROLES:(see Individual role assignments under separate cover posted below) 1. Seller: (5 teams of 2 sisters) You(the CEO) and your partner (sister and CFO) started an industrial construction business about 6 years ago with little more than a couple of trucks and a back hoe. The business (ABC ) was run out of a mobile home on your parents 100 acre hobby farm in Langley, BC. Your parents have owned the farm for over 60 years. You and your sister were born there. You live in the original farmhouse with your spouse, and until recently your mother. Your sister lives in Surrey with her family about 3 miles away. The entire family gets together on the farm most weekends. A couple of years ago your father passed away. Your mother decided to leave the farm to live with her sister. You and your sister own 50% of the farm property. Your mother owns the other 50 %. Dad was a retired KPU University professor and Mom was a registered nurse in Surrey. Today your business owns 25 heavy duty trucks as well as many pieces of specialty equipment from front end loaders to industrial cranes. The business operates from a 16,000 square foot building on the farm. Including office staff, you have 32 non-union employees in a variety of skilled positions, including 5 administrative staff. Of your 32 employees, excluding you and your sister, 9 are also family members. They rely on the jobs you provide. In the last 2 years, in part due to the pandemic, demand for construction services has been low. Your working capital is strained. Recently you laid off 11 employees. You are both, as well as your mother, concerned about the future of the business. However, of late, there has been a noticeable increase in demand for construction services. Potential customers are calling. Unfortunately, you have limited resources to bid on lucrative projects. The farm land has considerable value. Its' appraised value is over $2.2 million. Your equipment is worth more than $850,000. You and your sister are well known and respected in the local construction business. You could easily find work with other construction companies. You have decided to hire a business consultant to help you explore your options. She carefully looked over your financial statements. Sales last year were under $250,000 but in the first 6 months of this year sales exceed $170,000. In your best year sales exceeded $700,000. Profit as a percentage of revenue has been as high as 6% but in some years a loss. The farm land is free and clear of any encumbrance. You have a mortgage on the building and equipment of $210,000. Recently the bank reduced your line of credit from $300,000 to $175,000. You have a good relationship with your bank but they can "call" (demand immediate loan repayment) at any time. Your stakeholders have a great respect for you and your family. All are active in the community and when times were good your business contributed generously to the those in need in the community. Selling all or part of the business seems necessary but it is important to protect all stakeholders, including your Mom and employees! Your consultant's report suggests several options for you to consider: Your options include: 1. close the business - liquidate the equipment - sell the land 2. sell the farm and either relocate the business - may be expensive if suitable space can be found in the area 3. find an investment partner and go forward as opportunity and demand for construction improves in the area The business consultant has found 3 parties who may be interested in the business: a large competitor, the local university and an investment bank run by some old friends. You intend to meet with each of these interested parties ASAP to discuss and explore their interest. Your consultant is out of the country and not available. You and your sister know and agree that time is of the essence so will conduct meetings online and on your own! After your preliminary online discussion/negotiation you and your sister will discuss each interested parties offer. (It is clear that a decision must be made or you run the risk of bankruptcy) You will then ask for an additional meeting with each interested party in an effort to complete a final negotiation to go forward! After the second online negotiation you will decide how to best go forward and which offer makes the most sense. Good luck! Background of interested parties: Party 1 - COMPETITOR You and your partner operate a large local "publicly" owned construction company operating South of the Fraser river in the lower mainland of Vancouver. You have a number of large scale construction projects underway and want to bid on more. Your annual sales exceed $32 million. In the past ABC has been competitor on smaller mid-range products. They have a good reputation. You need men and equipment (not necessarily management)and have heard through the grapevine ABC is in financial difficulty. Your antennae are up! There may be an opportunity! ABC's consultant has approached you as a potential buyer of ABC's assets. You looked over the numbers and have a good sense of the value of the land and equipment etc. as follows: 1. Land (100acres)has been valued at $2.2 million. Your CFO says $1.8million is more realistic in today's depressed market. You would sell the land to finance the ABC acquisition. 2. ABC equipment is relatively new and from your perspective worth $460,000 in a fire sale or auction. 3. You are a major customer of the same bank ABC uses and can influence their decision making. You have been asked to meet with the owner's of ABC today to discuss a deal. You know there are several other interested parties but do not who they are. You want these assets. They can make you and your shareholders money. To prepare you need to explore an opening offer To do so you must decide on a "target price" and your resistance point. Determine your initial offer? Prepare to defend that offer in a negotiation with the seller. Interested party 2 - KPU You work for a local university, Kwantlen Polytechnic, in their agricultural school. Your academic work focuses on crop research and development. Research includes disease prevention, GMO's and crop rotation methods for this area. ABC operates on part of the 100 acre plot of land adjacent to Kwantlen's commercial research farm. You understand from a consultant friend, a business alumnus of your school, that ABC is in financial difficulty. They may sell their 100 acres. You are desperate for more land, a scarce commodity in the area. ABC's land would be perfect. An agricultural alumni has come forward indicating he would finance purchase of the land and donate it to the school! He has capped his interest at $1.6 million. You have no other access to funds in the short term. Kwantlen may be able to budget funds for year next capped at $250,000 for specific capital projects! In addition, you have been advised that the mother and father of ABC are both alumni of Kwantlen Polytechnic University. In fact the father was Dean of the Business School and the mother was a well liked instructor in the Department of nursing. The mother actively comes to alumni events today. You hope the Mom and Dad's history with KPU will give you an edge in negotiation. You need to be creative! You have asked to discuss your interest in the land online with ABC management to discuss your interest in the property. You have permission from Kwantlen to buy! Spending public funds is a grave responsibility. You must be careful. However, If you are successful it will be a great accomplishment in the eyes of the University! You need to establish your opening offer including your "target point" and "resistance point". Getting this land is critical to the university and your research! Plan your move, approach and strategy. Interested party 3 - XYZ INVESTMENT BANK You and your partner own a small investment company XYZ in the local area where ABC does construction work. You are familiar with the company and its' owners. A few years back you loaned money to an ABC customer to pay its' bills to ABC. That timing of that loan and payment to ABC helped ABC get 2 other construction jobs in a difficult financial period. In fact, you and your partner, are friends with the ABC's owners and attended university together. Your partner dated one of ABC's owners during High School! Your kids are all friends at school and play on the same sports teams. The consultant has given you some preliminary estimates on asset value as follows: Land value = $2.2 million, Equipment = $850,000 (mortgage $210,000) Sales have declined for the past couple of years but your clients confirm the market is turning and the demand for construction services will grow double digits over the next decade. Revenue at ABC is improving and you know the company makes a modest profit. However, overheads are high and both employees and management are overpaid. There are too many family members in the company. It may be time to "clean house". You are prepared to offer a loan to the company of $1.3 million at 5.2% annual interest. In doing so you will be given a 51% ownership in ABC. Both you and your partner will have a seat on the board and will need to approve all ABC capital expenditures of $100,000 or more. XYZ will guarantee ABC's mortgage with the bank and end the short term risk of demand repayment. As long as the company achieves a net profit going forward of 7% per annum XYZ will not interfere in operations management. Failure to meet profit goal may result in XYZ appointing a new CEO. You will discuss your offer online with ABC management today! These are your friends so you will negotiate honestly, but only, minor terms. Your company strategic plan requires discipline in all transactions like this, regardless of how much you like the owners! A negotiating error could sink your company!

1. review assignment background for Simulation, including your specific role and make contact with your partner if applicable

2. develop a negotiating strategy that makes sense to you and your partner

3. ABC management to arrange an preliminary online discussion/negotiation re potential sale and purchase with each interested party

4. arrange to meet a second time online with each seller and each interested party to negotiate/refine offers and seek possible acceptance of final offer

5. ABC management to make a final decision on successful interested party. Successful party will receive 2 bonus marks for Simulation 3.

6. ABC management teams to send a brief online report explaining their decision to me and to each interested party outlining that decision and rationale for the decision(use of terms used in text will help grade!). This due and must be sent "no earlier" than December 1 - 15 marks - max. 3 pages