How not to negotiate a deal

One of the most enjoyable class during the course of my MBA was negotiations. One of the first concept that you learn is BATNA (Best Alternative To a Negotiated Agreement), basically, BATNA is the only standard which can protect someone both from accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept. So, if the BATNA is better than the agreement you would reach, then you would not go for the agreement. How is this related to stocks and business?

The most obvious example is the now defunct Microsoft/Yahoo deal. For Yahoo, and more specifically, the chief Yahoo (defined in Dictionary.com as an uncultivated or boorish person; lout; philistine; yokel) Jerry Yang, there were really two simple options:

Negotiated agreement: That leads to Jerry walking away rich, and with his reputation intact while Microsoft is stuck with hopelessly trying to incorporate the mess that Yang and his predecessor Terry Semel left behind into its organizational structure.

BATNA: Keep Yahoo independent, and the face the litany of horrors that includes:

1. Angry shareholders in revolt, and if they succeed, Yang's legacy with Yahoo will be one of humiliation.
2. Even lower offers from future suitors if Yahoo can even find one.
3. An advertising system that is obviously not working well, why else would Yahoo outsource its search advertising to Google.
4. A continued decline in stock price if Yahoo income doesn’t show improvement next quarter.

So, when you look at the alternatives, it’s really simple. It’s understandable why Yang wanted to squeeze a few billion more from Microsoft, but that should never have been done at the cost of losing the deal. So, even if he took the deal as it was on February 1^st, he would’ve been better off than the BATNA.

As for why I think Yahoo is in a weak position, just look at Jerry’s statement on Monday. It’s like saying: “we’re sorry we're so stupid, please take us back.” Losing the deal was a mistake, but owning up to it is an open invitation for your already pissed off . So, in the end, may be Yang and the Yahoo board could’ve benefited a little more from some MBA classes. That’s why I think the definition of yahoo on Dictionary.com would greatly benefit from a picture of the Jerry Yang, the self professed Chief Yahoo, talk about an apt description.