Chapter 2 - Dynamics of Negotiations and the Content of Letter of Intent

Summary

Introduction

As noted in the Introduction, this study hypothesizes that letter of intent is a distinct pattern in business practice that may amount to a commercial usage: ‘a pattern of repetitive behaviour among merchants… observed from a sense of legally binding obligations, not for mere courtesy, convenience or expediency’. But what is the content of this pattern?

This Chapter will focus on the content of letter of intent, provide an insight into the letter of intent and its role in practice and thereby frame further research. The Chapter will answer the following questions. What kind of issues form the content of letter of intent generally? Though the provisions differ in each document, can some general pattern be identified? How can the provisions which reflect the dynamics of negotiations be identified? The Chapter will draw attention to the practice of negotiations and identify the patterns of issues relevant in the course of negotiations. These issues will form the parameters for the comparative observations made at a later stage (in Chapter 7).

The modern trend towards forming contracts in negotiations has been mapped by negotiation studies. A growing body of research conducted over the past thirty years provides information on the way in which parties negotiate contracts in practice, and the methods used to organize, influence, and manage the negotiation process. Alongside this theoretical understanding, negotiation studies have resulted in practical advice to negotiators on conducting negotiations with the aim of reaching a (profitable) agreement. In this way, negotiation studies have streamlined a conscientious approach on the part of dealmakers to the strategies and tactics of their negotiations in a complex deal. The knowledge on negotiations has increasingly acquired practical relevance for dealmakers who can obtain sophisticated, practice-oriented advice on the way to negotiate deals with the best possible outcome. For example, setting the target of gaining a ‘win-win’ result in negotiations was a fresh and innovative idea in business education, whereas currently, it is almost a routine part of negotiation techniques which is learned by the majority of operational personnel.

Insights from negotiation studies have shed light, in particular, on the manner in which commercial parties conduct negotiations in practice and the issues relevant in negotiating a transaction.