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Saving Troubled Stutts Corporation: Information Known Only to Decker
Bodily, Samuel E. Case QA-0713 / Published July 31, 2008 / 2 pages.
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Product Overview

This case, part of a series (see also UVA-QA-0712, UVA-QA-0714, and UVA-QA-0715), contains information known only to Decker. Two individuals own all the capital in Stutts Corporation. Decker owns all the debt and Evenson owns all the equity. Unless Decker and Evenson supply workout loans, Stutts will become bankrupt immediately. If they do provide the loans, Stutts will go into three possible states: recover, restructure, liquidate. The payouts to Decker and Evenson differ in each state. The two parties have differing probabilities for these three states and differing budget limits for adding capital; probabilities and budgets are private, confidential information. Students playing each role will negotiate, in pairs, a deal for the additional financing of Stutts. Without state-contingent side payments and/or altered ownership arrangements, players cannot strike a deal that is good for both sides, based on their differing probabilities and budget constraints. Students will carry out a preliminary negotiation, discuss it in class, and then have a chance to conduct a final analysis, based on new ideas from class discussion.


Learning Objectives

Through this case series, students will learn the concept of best alternative to a negotiated agreement (BATNA) and apply it to determine when a deal is attractive, only to find that the obvious deal is unattractive. They will have an opportunity to see the advantage of a contingent contract and a side payment. The concept of Pareto optimality will be used to compare possible deals. They will gain experience in creating value in deals (moving toward the Pareto frontier) and learn how the behavior of each party in developing deals will determine how value is shared (on what part of the Pareto frontier they land). They will learn that differences between parties can be exploited to achieve better payouts for each side.

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  • Overview

    This case, part of a series (see also UVA-QA-0712, UVA-QA-0714, and UVA-QA-0715), contains information known only to Decker. Two individuals own all the capital in Stutts Corporation. Decker owns all the debt and Evenson owns all the equity. Unless Decker and Evenson supply workout loans, Stutts will become bankrupt immediately. If they do provide the loans, Stutts will go into three possible states: recover, restructure, liquidate. The payouts to Decker and Evenson differ in each state. The two parties have differing probabilities for these three states and differing budget limits for adding capital; probabilities and budgets are private, confidential information. Students playing each role will negotiate, in pairs, a deal for the additional financing of Stutts. Without state-contingent side payments and/or altered ownership arrangements, players cannot strike a deal that is good for both sides, based on their differing probabilities and budget constraints. Students will carry out a preliminary negotiation, discuss it in class, and then have a chance to conduct a final analysis, based on new ideas from class discussion.

  • Learning Objectives

    Learning Objectives

    Through this case series, students will learn the concept of best alternative to a negotiated agreement (BATNA) and apply it to determine when a deal is attractive, only to find that the obvious deal is unattractive. They will have an opportunity to see the advantage of a contingent contract and a side payment. The concept of Pareto optimality will be used to compare possible deals. They will gain experience in creating value in deals (moving toward the Pareto frontier) and learn how the behavior of each party in developing deals will determine how value is shared (on what part of the Pareto frontier they land). They will learn that differences between parties can be exploited to achieve better payouts for each side.