THE MUENNING OIL COMPANY;

THE MUENNING OIL COMPANY; “Look,  you  asked  for  my  advice,  and  I  gave  it  to  you,”  Frank  Kelsey  said.  “If  I  were you,  I  wouldn’t  make any  more  concessions!  I  really  don’t  think  you  ought  to  agree  to  their last  demand!  But  you’re  the  one  who  has  to  live  with  the  contract,  not  me!” Static  on  the  transatlantic  telephone  connection  obscured  Jean  Fontaine’s  reply. Kelsey asked him to repeat w hat he had said. “OK,  OK,  calm  down,  Jean.  I  can  see  your  point  of  view.  I  appreciate  the  pressures you’re  under.  But  I  sure  don’t  like  the  looks  of  it  from  this  end.  Keep  in  touch — I’ll  talk  to you early next week. In the meantime, I will see what others a t the office think about this turn of  events.” Frank Kelsey hung up the phone. He sat pensively, staring out at the rain pounding on the  window.  “Poor  Fontaine,”  he  muttered  to  himself.  “He’s  so  anxious  to  please  the customer,  he’d  feel  compelled  to  give  t hem the whole pie without getting his fair share of the dessert!” Kelsey cleaned and lit his pipe as he mentally reviewed the history of the negotiations.  “My  word,”  he  thought  to  himself,  “we  are  getting  eaten  in  little  bites  in  this Reliant deal! And I c an’t  make  Fontaine  see  it!” BACKGROUND Muenning Oil Company was founded in 1902 . The founder of Muenning Oil, J . E . Muenning , pioneered a major oil strike in north central Oklahoma that touched off the Oklahoma  “black  gold”  rush  of  the  early  1900s.  Through  growth  and  acquisition  in  the  1920s and 30s, Muenning expanded the company rapidly . After a period of consolidation in the 1940s and 50s, Muenning expanded again. It developed extensive oil holdings in North Africa and the Middle East, as well as significant coal beds in the western United States. Much of Muenning ’s  oil  production  is  sold under other company names as gasoline through service stations in the United St ates and Europe, but it is also distributed through several chains  of  “independent”  gasoline  stations.  In  addition, Muenning is also one of the largest and best known worldwide producers of industrial petrochemicals. One of Muenning ’s  major  industrial  chemic al lines is the production of vinyl chloride monomer (VCM). The basic components of VCM are ethylene and chlorine. Ethylene is a colorless, flammable, gaseous hydrocarbon with a disagreeable odor; it is generally obtained from  natural  or  coal  gas,  or  by  “c racking”  petroleum  into  smaller  molecular  components.  As a  further  step  in  the  petroleum  “cracking”  process,  ethylene  is  combined  with  chlorine  to produce VCM, also a colorless gas. VCM is the primary component of a family of plastics known as the vinyl ch lorides. VCM is subjected to the process of polymerization, in which smaller molecules of vinyl chloride are chemically bonded together to form larger molecular chains and networks. As the bonding occurs, polyvinyl chloride (PVC) is produced; coloring pigm ents  may  be  added,  as  well  as  “plasticizer”  compounds  that  determine  the relative flexibility or hardness of the finished material. Through various forms of calendering (pressing between heavy rollers), extruding and injection molding, the plasticized poly vinyl chloride is converted to an enormous array of consumer and industrial applications: flooring, wire insulation, electrical transformers, home furnishings, piping, toys, bottles and containers, rainwear, light roofing, and a variety of protective coati ngs. (See Exhibit 1 for a breakdown of common PVC - based products.) 3 In 2006, Muenning Oil established the first major contract with the Reliant Corporation for the purchase of vinyl chloride monomer. The Reliant Corporation was a major industrial manufacture r of wood and petrochemical products for the construction industry. Reliant was expanding its manufacturing operations in the production of plastic pipe and pipe fittings, particularly in Europe. The use of plastic as a substitute for iron or copper pipe w as gaining rapid acceptance in the construction trades, and the European markets were significantly more progressive in adopting the plastic pipe. Reliant already had developed a small polyvinyl chloride production facility at Abbeville, France, and Muenning constructed a pipeline from its petrochemical plant at Antwerp to Abbeville. The 2006 contract between Muenning Oil and Reliant was a fairly standard one for the industry, and due to expire in December of 2009. The contract was negotiated by Reliant’s  pur chasing managers in Europe, headquartered in Brussels, and the senior marketing managers of Muenning Oil’s  European  offices,  located  in  Paris.  Each  of  these individuals  reported  to  the  vice  presidents  in  charge  of  their  company’s  European  offices, who in tu rn reported back to their respective corporate headquarters in the States. (See Exhibits 2 and 3 for partial organization charts.) THE 2002 CONTRACT RENEWAL In February 2009, negotiations began to extend the four - year contract beyond the December 31, 20 09, expiration date. Jean Fontaine, Muenning Oil’s  marketing  vice  president for Europe, discussed the Reliant account with his VCM marketing manager, Paul Gaudin. Fontaine had been promoted to the European vice presidency approximately 16 months earlier aft er having served as Muenning ’s  ethylene  marketing  manager.  Fontaine  had  been with Muenning Oil  for  11  years,  and  had  a  reputation  as  a  strong  “up  and  comer”  in Muenning ’s  European  operations.  Gaudin  had  been  appointed  as  VCM  marketing  manager eight months ear lier; this was his first job with Muenning Oil, although he had five years of previous experience in European computer sales with a large American computer manufacturing company. Fontaine and Gaudin had worked well in their short time together, establishing a strong professional and personal relationship. Fontaine and Gaudin agreed that the Reliant account had been an extremely profitable and beneficial one for Muenning , and believed that Reliant had, overall, been satisfied with the quality and service under the agreement as well. They clearly wanted to work hard to obtain a favorable renegotiation of the existing agreement. Fontaine and Gaudin also reviewed the latest projections of worldwide VCM supply which they had just received from corporate headquarter s. (See Exhibit 4.) The data confirmed what they already knew — that there was a worldwide shortage of VCM and that demand was continuing to rise. Muenning envisioned that the current demand – supply situation would remain this way for a number of years. As a r esult, Muenning believed that it could justify a high favorable formula price for VCM. Fontaine and Gaudin decided that they would approach Reliant with an offer to renegotiate the current agreement. Their basic strategy would be to ask Reliant for their fi ve - year demand projections on VCM and polyvinyl chloride products. Once these projections were received, Fontaine and Gaudin would frame the basic formula price that they would offer. (It would be expected that there would be no significant changes or vari ations in other elements of the contract, such as delivery and contract language.) In their negotiations, their strategy would be as follows: PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT :)