Mr. C. Bank owned a hotel that was the envy of the rest of the Street. Falling upon hard times, Mr. Bank needed to sell his hotel, and quickly, in order to concentrate on his other businesses. Mr. M. Stanley, already owning other properties on the Street, was one of those who had always coveted the Bank Hotel.
In the heat of a time pressured negotiation, Mr. Bank and Mr. Stanley agreed to an initial payment for the hotel, acknowledging that it was less than the total amount that would ultimately be paid. After Mr. Stanley rented the hotel for three years, they would consummate the transaction based upon the market price for the hotel at that point in time.
The agreement made sense for both parties: Mr. Bank received needed cash to support his activities elsewhere around the world; Mr. Stanley added the hotel to his own holdings and looked forward to dressing it up, making it more attractive to the rest of the Street, based on his own taste and skill. He also promised efficiencies based upon the scale gained by the combined enterprise of the Legacy City House and the other Stanley properties.
The Street was skeptical. Nobody living there had ever been able to make such a large purchase profitable. At the same time, these very same neighbors did everything they could to make the ensuing three years miserable for Mr. Stanley. They aggressively wooed Mr. Stanley's guests and staff to come to their own properties. Mr. Stanley, however, continually told the Street that all was well, that they were able to attract as many guests and staff as they had lost, and that the new efficiencies of scale with his now larger organization would eventually be the envy of his competitors.
Now the three years has passed and Mr. Bank came in to inspect his old hotel. He was shocked about what he saw: Revenue was down, and some of the best clients had followed staff members to other spots on the Street. Mr. Stanley's team had installed a new computer system, but it was buggy, inefficient and made basic functions difficult. The carpets were frayed, and the walls looked like children had scribbled on them. Morale was down and Mr. Bank's proud culture had started to deteriorate. Publicly, Mr. Stanley continued to insist that the Street's trade publications were exaggerating the problems.
Privately, in secret conversations with Mr. Bank, Mr. Stanley admitted that things were tougher than what he had said to the Street. “I can't give you what you say the hotel is worth,” he said. “The systems are broken, though we are fixing them. The carpets need to be replaced and we might have to even close a wing while we address our problems.” Mr. Bank quickly realized that though Mr. Stanley was publicly denying how serious the problems were, the private negotiations with Mr. Bank were incenting Mr. Stanley to possibly make the problems seem even worse than they were. Mr. Bank was furious: “But you are the one who has been running the hotel for these three years! It's under YOUR watch that these things have happened. You have destroyed the value in our joint venture! You turned a hotel that was the envy of the rest of the street into a distressed property!” “Nevertheless,” Mr. Stanley replied, “it HAS become a distressed property and deserves a lower evaluation.”
So the deal was finally completed at terms more favorable to Mr. Stanley. Mr. Bank only says that he is pleased that he is able to now concentrate on his other properties.
Mr. Stanley is happy with his transaction. The difficult cloud of his troubled new property did have a silver lining: a cheaper acquisition cost. Though victorious, Mr. Stanley's challenges remain. How do you get staffers working efficiently when your systems do not? In a hyper-competitive industry where your customers are always free to leave, can such a large hotel ever give the type of personalized service and performance that customers demand and deserve?
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