From Suing to Wooing

Sometimes, corporate legal battles lead to courting of a different kind.

According to Edgar Bronfman Jr., the Seagram heir and Vivendi Universal’s executive vice chairman, who was the key negotiator on the MP3.com deal, such a gradual shift from suing to wooing is exactly what happened in Vivendi Universal’s approach.

“At the time of the litigation, we were litigating,” he says of the period between January and November 2000. As the case moved toward the judgment, though, MP3.com’s “unique technical capabilities, a large audience, and an identifiable brand name” had begun to look pretty good to Vivendi Universal. And by May, when the deal was announced, the acquisition made perfect sense. “We thought it would be accretive to earnings and good for shareholders, which is the only reason to acquire anything,” says Bronfman.

Indeed, buying MP3.com has sped the development of Vivendi Universal’s new online music subscription service, Pressplay, due to be launched soon. It also has made Vivendi Universal a rival to MusicNet, the joint venture among major competitors, including Bertelsmann and AOL Time Warner.

Too Small for Enemies

Online advertiser 24/7 Media Inc. (now 24/7 Real Media) also used a court battle to its advantage earlier this year, as it looked to sell noncore assets to get a quick cash infusion. Its Sabela ad-targeting technology was one candidate for the auction block, since it duplicated other operations. When 24/7 studied potential buyers, though, its top competitor, DoubleClick, seemed the most natural fit. Tony Plesner, 24/7′s COO and de facto CFO at the time, knew that because of information gleaned from the lawsuits DoubleClick and 24/7 had traded over a disputed patent on Sabela’s technology.

After an out-of-court settlement in November 2000, which involved some cross-licensing agreements, 24/7 executives approached their erstwhile adversary about buying Sabela. Compared with other bids, DoubleClick’s was the “most attractive and expeditious,” says Plesner, and by May, 24/7 had its cash: about $5 million in the bank. “This industry is too small to have enemies,” he adds.

In a way, it hurt to cede customers to a former court rival, especially at a steep discount from Sabela’s purchase price. Plesner did, however, find a way to squeeze some more from the deal, through contingency earn-outs. This feature–giving 24/7 a chance at additional fees based on DoubleClick’s success in moving customers to its own competing technology over a short period–ultimately produced extra proceeds of about $500,000.

Negotiators in such deals say rivals must be willing to trust one another and be willing to forget the past and stick to current facts. “We ring- fenced this from every other negotiation we had with DoubleClick,” says Plesner.

Playing it cool can help, too. “If you go in there saying, ‘The only thing we can do is sell our company,’ and spend 98 percent of the time trying to convince them to buy you, you don’t get anywhere,” says MP3.com’s Ouyang. He says his company had the financial strength to stand alone if the Vivendi Universal deal had not worked out. “You have to convince yourself that you control your own destiny.”

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