falls in Texaco’s stock price. Three events that were favorable to Texaco were
marked by positive stock price movements.^10 In any case, the enormous drop
in the total value of the companies would appear to have been much larger
than any difference in expectations. According to Equation 15.2, the parties
should have ended the dispute, thus saving these enormous costs.
A second explanation for the delay in settlement has to do with the liabil-
ity of Texaco’s directors.^11 Whether the ultimate payment by Texaco was $3 bil-
lion (in a settlement) or $11 billion (if the jury verdict was ultimately upheld),
the directors faced the risk of losing all of their assets if they were found per-
sonally liable for the loss. Under these circumstances, a director rationally
would prefer to fight the decision in the courts (pursuing a small chance of
vindication) rather than settle and be sued. It is significant that the directors
were relieved of personal liability in the bankruptcy court’s final settlement.
Finally, issues of bargaining strategy probably help explain the settlement delay
and final acceptance. First, Pennzoil aggressively sought its bond and lien rights,
enforcement of which would have been very costly for Texaco (and may have pro-
voked bankruptcy). In doing so, Pennzoil was attempting to exercise leverage; that
is, it sought to obtain better terms in a settlement by imposing high costs on the
other party. Texaco responded in kind, first by fighting against the bond enforce-
ment and then, when that failed, abruptly declaring bankruptcy. After eight
months of costly and unresolved bankruptcy proceedings, the parties agreed to a
$3 billion settlement. Ironically, this amount almost exactly split the difference
between the disputants’ last offers before bankruptcy: $4.1 billion and $2 billion.
Given the real risk that protracted bankruptcy could destroy much of Texaco’s
value, Pennzoil rationally accepted the $3 billion settlement, even though the odds
that its $11 billion award would be sustained probably were better than 50-50.656 Chapter 15 Bargaining and Negotiation(^10) Ibid.
(^11) See R. H. Mnookin and R. Wilson, “Rational Bargaining and Market Efficiency: Understanding
Texaco vs. Pennzoil,” University of Virginia Law Review(1989): 295–334.
(^12) This account is based on R. Weisman,”Genzyme Deal Survived a Culture Clash,” Boston Globe
(February l2, 2011), p. A1; C. V. Nicholson,” Sanofi Agrees to Buy Genzyme for $20.1 Billion,” The
New York Times(February l7, 2011), p. B10; R. Weisman,” Sanofi’s Chief Questions Genzyme’s
Price,” Boston Globe(October 29, 2010), p. B7; and J. Whalen and D. Cimilluca,” Sanofi’s Genzyme
Bid Turns Hostile,” The Wall Street Journal (October 5, 2010), p. B3.
Sanofi’s Bid
for Genzyme
Revisited
While top management of Sanofi believed that acquiring Genzyme would add consider-
able value to its operations, the question remained, At what price? CEO Viehbacher was
fond of saying, “I’m an accountant, not a scientist.” Yes, Genzyme offered promising drugs
in development, top scientific capabilities, a U.S. beachhead, and proximity to research
talent at MIT and Harvard University. But Sanofi saw Genzyme with its ongoing produc-
tion problems as something of a “fixer upper.” Proper valuation of Genzyme was key, and
the marketplace, as demonstrated by the firm’s depressed stock price, was not bullish.
Vierbacher and Sanofi’s board had no intention of overpaying for the acquisition.^12
c15BargainingandNegotiation.qxd 9/26/11 11:03 AM Page 656