How to win a bid without bidding

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How to win a bid without bidding!
Jim Corum Paul Greenland Quentin Hicks Amanda
Nelson
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How to win a bid without bidding

• FMCG Advertising agency is for sale. A bank has
  been appointed to handle sale. There are two
  bidders
• ASAP A media conglomerate
• An MBO team of FMCGs Directors
• As the MBO team we are trying to decide whether
  to bid or not bid for the company

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Background assumptions

• Asking price based on net services is 100MM
• Offers below asking price will be rejected
• Expected future value of FMCG is 110MM
• MBO team cannot bid above 100MM
• ASAP is cash rich and experienced at
  acquisitions
• If bids are tied, price will increase to 105MM
• Current owners need to sell quickly (inside
  information)
• If no bids received owners are likely to seek
  deal with MBO team at reduced price

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To bid or not to bid?
Payoffs of bidding/not bidding

• ASAPs best move is to always bid as they will
  always win given their ability to pay 5MM more
• Our (weak) best move is not to bid

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However

• If we do not win the bid, we have decided to
  leave and set up our own company (at a set up
  cost of 10MM), taking with us many valuable
  employees and clients
• Today, we tendered our resignations and are
  working through our two weeks notice period
• When we leave, we calculate that FMCG will drop
  in value by 50MM
• We have made all information public

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To bid or not to bid?
Payoffs of bidding/not bidding

• ASAPs best move is not to bid
• Our best move is not to bid and win!

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The winning bid

• ASAP has completed many similar acquisitions
• They looked ahead and recognized that future
  actions affect their current bidding strategy
• In reality FMCG sold to the MBO team for only
  60 MM