Principles of Business Governance
Edward and Johnny are brothers and love to sail together. They want to turn their sporting interest into a business. They then decided to start their own business called Everbright Sails Pty Ltd.
Edward and Johnny design and manufacture sails for all size yachts and supply wholesale to retail outlets. Their company becomes very successful and soon they need more sophisticated machinery to ensure that their business is profitable.
Edward’s cousin Julio is also in the manufacturing business, supplying plant and manufacturing equipment to factories. Julio is the sole director and marketing manager for the company Equipment Pty Ltd. On Monday Julio approaches his cousin Edward at a wedding function and offers to sell Everbright new sail making machinery that has been developed in France. Julio claims that the equipment will improve output and efficiency in the sail making factory by 30%. He said he is prepared to sell the equipment to them for only $80,000. Julio said the offer will end on Friday at 5pm, and acceptance could be by email or post.
Edward and Johnny think that Julio’s offer is a very good and one which would enable Everbright to increase production and profit. Edward and Johnny are keen to accept Julio’s offer but feel that they really should try to negotiate better terms. On Tuesday Edward sends Julio an email on behalf of Everbright which states :
Everbright Sails is very interested in your offer. However we believe that the new equipment will only deliver a 15% profit return on capital, so we are only prepared to pay you the amount of $50,000 for the machinery.
Julio happens to be on a three day conference on Tuesday, Wednesday and Thursday, so has not read his email. Meanwhile Edward and Johnny have reconsidered their position and are feeling nervous that they may have missed the deal because they have not heard back from Julio. They decide to accept Equipment Pty Ltd’s original offer and on behalf of Everbright post Julio a letter on Friday morning agreeing to purchase the French machinery for $80,000.Just to be sure, at the same time they email Julio. Due to problems with Equipment Pty Ltd ISP, the email is not received into Equipment Pty Ltd’s system until 6pm Friday.
Over the weekend Julio meets with his old friend Jack who happened to be in the market for the same French sail making machinery. Julio owes Jack a favour so wants to give the machinery to Jack instead of selling it to Everbright. On Monday morning, Julio reads his email and opens the post. He calls Edward and Johnny and says the deal is off. Edward and Johnny are very upset and want to force Julio to sell them the French machinery.
What are the risk factors involved in the above negotiations :
Advise,using appropriate objective references, Julio (Equipment P/L)as to whether or not a contract exists with Edward and Johnny (Everbright P/L).