Effective Agreements' Blog

Strategic Alliances Letter of Intent

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In a previous post on international strategic alliances (click here), Letters of Intent were referred to as a conundrum, as they remain. CEOs and CFOs seem to gravitate toward them for strategic alliances, probably in order to reduce the time they must spend on the contract. Having run into a case recently where one would have been useful for a domestic contract, I decided to provide additional input on:

• When Letters of Intent are of value; and

• How they should look.

Assumptions on Strategic Alliance Negotiation Strategy

The discussion below assumes that the negotiations are proceeding by Effective Agreements preferred methodology: using an outline and a flip chart to create bullet points. (For a complete description that will make this much clearer, please view Effective Contract Negotiations – 11 Tips.)

Why a Strategic Alliance Letter of Intent?

The argument for a Letter of Intent at this stage is that it memorializes the agreed points and provides a document which management can show to the Board. If all of the terms can be described clearly in the Letter of Intent, the parties will have a firm grasp on where they stand in the negotiation and where they have “agreed to disagree.”

If the Effective Agreements negotiating process (as discussed in the 11 Tips) has been followed, the Letter of Intent will be a concise and presentable statement of the facts.

What Belongs in a Strategic Alliance Letter of Intent

• A statement that the Letter of Intent (“LOI”) is not binding, and that only the final agreement will be;

• A statement that it does reflect the thinking of the parties at that present time in regards to the strategic alliance;

• Bullets or short paragraphs on what the parties have decided concerning the major issues for the Strategic Alliance. If my model has been followed, this would be a narrative version of the bullet points taken from the working flip charts.

• Where day-to-day items have been discussed and need (a) to be memorialized and (b) shown to the Board, they should be included as well.

• The intention of the parties on how to proceed (usually to drafting a contract.)

Note that if there is an LOI and it is complete, the person charged with drafting the agreement (often the CEO or CFO) can use it in place of the flip charts.