Analysis of Daimler Chrysler Merger

Analysis of Daimler Chrysler Merger

Introduction

Amounting to $36 billion deal (Stertz & Vlasic, 2000) the merger of Daimler-Benz and Chrysler in November 1998 was considered the largest trans-Atlantic merger ever. The resulting corporation was equally stunning; DaimlerChrysler was the world's fifth largest automobile manufacturer with $130 billion business, 442,000 employees (Finkelstein, 2002) and share value which climbed to a high $108.62 a few months after its stock was first traded (Schneider, 2001). Jurgen Schrempp, the Daimler's CEO,called it a “wedding made in heaven” (Schneider, 2001). In other words, his vision of this new giant in auto industry was a corporation that would take advantage of synergy effects from two complementary merging companies. However, the honeymoon phase was over after six months. On their closely-watched first quarterly earnings, the numbers were a massive disappointment. Contradict the company's previous promise, its revenues rose ten percent in the second quarter to $38.5 billion but its profits were the same $1.53 billion (Stertz & Vlasic, 2000). The potential synergy savings between the two companies did not seem to take effect. As the consequence, DaimlerChrysler stock dropped $13 per share in two days, decimating over $10 billion in value (Stertz & Vlasic, 2000). The subsequent years did not look promising for the merged companies either. The internal turbulence within the company and the disappointing integration profitability, most notably indicated by the declining share price, led to demerger in 2007. This paper attempts to analyze the successes and failures of post-merger integration and determines the significant factors that culminated to the separation of these two automakers. Additionally, the elements of a future strategy for Mercedes, one of Daimler AG automobile divisions, without Chrysler are identified by analyzing its strategic position in 2007.

Discussion

Reasons for mergers and acquisitions

There are some reasons for companies to merge. Through a merger or acquisition growth of market share or sales can be realized instantly. Very important are economies of scale in mergers of companies within the same industry. A doubled output reduces the price-cleared unit-costs by 20-30%. Faster technological changes and shortened product-life-cycles require higher R&D-expenditures. Those can be spread over more unites after a merger. Further on merging companies expect to acquire new competences and capabilities, to enter a foreign market quicker and build up a global presence and, important in phases of consolidation, to eliminate competitors.

Daimler-Benzs' motives

Daimler-Benz researched 1997 the growth potential of its luxury brand Mercedes. The result was that it would never be possible to sell more than 1 million cars a year. But Mercedes wanted to increase its revenues by 7% annually to peak 50 million $ within 10 years. The shortlist of potential acquisitions consisted of Honda, Suzuki, Volvo, Renault and Chrysler. Suzuki's' and Volvos' volume sales were too low. Honda wanted to stay independent and Renault was strong in the same geographical market. The company left, was Chrysler The board saw the main purpose of a merger or an acquisition in maintaining the company's technological strength. They feared to loose their competitive strengths, ...