Merger & Acquisition
Nowadays, merger and acquisition (M&A) are the one of the most core business activity. It is, however, thought that the phenomenon has occurred in 20th century and M&A is typical event for business companies. We consider that this thought is incorrect. Merger and acquisition has a rich history and occupies different human areas. Then, what about the European Union? Likely, this alliance is friendly merger in global political aspect. M&A are considered as a particular business strategy or next and higher stage of ‘evolutions’; company’s marriage or result of struggle for survival. It could be seriously important decision in two (or more) firms so it should be taken into account carefully. This paper, handle with merger of Daimler and Chrysler in 1998, which had been hot issue in the business field before.
Contemporary, companies try to enable themselves to adapt more effectively to new challenges and opportunities. If the M&A is done well, M&A can increase revenues and market share, improve profitability, and enhance enterprise values.1 On the surface, the meaning of merger and acquisition may not really differ since the result would be same: two companies (or more) that had separate ownerships are now operating under the same roof, usually to obtain some strategic or financial objective. However, they are totally different at the end, especially, it is said that merger typically refers to two companies joining together (usually through the exchange of shares) as peers to become one and an acquisition typically has one company, the buyer, that purchases the assets or shares of the seller, with the form of payment being cash, the securities of the buyer, or other assets of value to the seller.2 The merger of automakers companies Daimler and Chrysler could be considered as merger of equals at first glance. The decision was made by two ‘equals’ and it was quite mutual. The name, ‘DaimlerChrysler’, is also a combination with two companies and it was determined through long negotiation. It is written in the annual report that DaimlerChrysler aims to be truly one company-the world’s leading automotive and transportation products and service company.3 Through this integration, they have stages of strategy to integrate many functions together, for instance, procurement functions, sales and marketing organization, all staff functions, research and development activities, etc.
They have some reason for decided to merge. The first reason is to make increasing of market share diversification of products. Through the merger, DaimlerChrysler could make a synergy in aspects of location. Both companies did not have strong foundations in the global market, even though they were dominant in the local field. The market share of Daimler-Benz in Northern America was under 1%, while the one of Chrysler in Northern Europe was around 1%. Those percentages were not high compared with competitive companies. DaimlerChrysler could use each other’s basic foundation and distribution network in Germany and Northern America and enter into each other’s market easily. It was motivated from the aspect of diversification for their product as well. The new product line would be quite supplementary. Their original lines were totally different, for instance, Daimler’s most important brand – Mercedes-Benz – was dominant in the luxury brand market industry and Chrysler was powerful to the mass-auto like mini-van, jeep, light truck, etc. New DaimlerChrysler could get full line-up product from 10 thousand dollars–low price model up to 130 thousand dollars-luxury model. Daimler and Chrysler could make all level-cars whatever customers want and it means diversification of the products to the company. The second reason is for creativity and knowledge. Combined experience and know-how on both sides of the Atlantic and all around the world could lift DaimlerChrysler above the crowd. Sharing experiences and lessons learnt from the success and failure past could help the company make suitable strategy, produce new models into the marketplace faster and start earning a return on them sooner. This kind of knowledge management would affect creativity as well. Individual and shared creativity would let company grow faster. It is said in the 1998 annual report that the method for knowledge sharing could operate on-line, like through Corporate University, dedicated training of their employees, through Business TV channel and through the use of cutting-edge IT-networks.3 The last reason is for improvement of competitive position. This merger between Daimler and Chrysler was a big issue in the worldwide car industry because both companies were big, famous, and even had symbolic meanings in Germany and America each. Moreover the merger was considered equal and the purpose was to make a synergy. DaimlerChrysler could improve their images in the industry and also develop more competitive position in the world through this positive and strategic merger.
In 1998 Daimler-Benz and the Chrysler Corporation tied the knot and formed the “Daimler-Benz and Chrysler Corp” in a $36 billion deal. At first, the merger was hailed as the deal of the century with German “Die Welt” describing merger of Daimler-Benz and Chrysler as the peak point of the whole wave of mergers in the world and “Handelsblatt” suggesting it as a “model of intercontinental partnership”. At that time then-CEO Juergen Schrempp ensured that Daimler-Chrysler Group would become a “leading automotive company XXI Century” and compared it to the marriage made in heaven.4 However, the honeymoon period ended abruptly and soon after the merger the rancor began. Diametrically opposite management and cultural differences contributed to deep divisions which finally after almost 10 years brought to the end this stormy relationship. The combined automakers, roughly the same size, quickly became the fifth largest automaker in the world and were expected to win a greater global market share. Combining German engineering with Mercedes being the core business and North American marketing – the Jeep line and the Chrysler minivans being the biggest draw – many expected the new company to get a bigger slice of the global market share. Unfortunately, the dream has not came true due.5 Because, after merged, the Chrysler company fell red in profit in the past due to serious financial problems but so did Daimler, suffering in 1995 6 billion Deutsche Mark loss – biggest loss reported by German company ever. Because they were differences in culture between the two organizations were largely responsible for this failure.6 Overcoming strong cultural differences – German authoritarian against American creativity – turned out to be unworkable task. While managing different culture may seem like a “small thing” when it is evaluated mergers, compared to product-market and resource synergies, the truth might be the opposite. Knowing that culture is pervasive and affects how the everyday business of the firm is performed in terms of setting and understanding company’s priorities, working out common attitude during meetings and promotion policy, culture issues become of high importance. Taking deeper insight into Daimler and Chrysler merger it becomes visible that operations and management departments were not successfully integrated because of the entirely different ways in which the Germans and Americans operated. While Daimler-Benz’s culture stressed a more formal and structured management style, Chrysler favored a more relaxed, freewheeling style to which it owed a large part of its premerger financial success. As a result of these differences and the German unit’s rising dominance, performance and employee satisfaction at Chrysler took a steep downturn.
This essay has provided research about the merger of Daimler and Chrysler. By the merger and acquisition, Chrysler has lost several car brands such as Plymouth.7 At the same time Daimler was blamed for dishonest takeover of Chrysler. Thereby this company has to approve innocence through court. The following mistakes have been brought to light. The first item is different cultures and business approaches. DaimlerChrysler tried to combine American and German business style without mutual concessions and changing. The second is suppression of motives and lack of mutual trust. Especially, Daimler’s motives were transforming during marriage. At the beginning it was “merger of equals” but at the end of transaction it turned on acquisition of Chrysler Group. As a result, Daimler and Chrysler followed different business strategies of development in real situation.
References
1. Weston, J. Fred, 2001, Mergers and Acquisitions, McGraw-Hill Professional Book Group
2. Sheman, Andrew J.; Hart, Miledge A., 2005, Mergers and Acquisitions from A to Z (2nd Edition), pp.11-20
3. Daimler Annual report 1998
http://www.daimler.com/Projects/c2c/channel/documents/108465_an98_part1_e.pdf
4. Roman Skąpski, Szok kulturowy, October 24, 2007.
http://www.auto-motor-i-sport.pl/magazyn/Daimler-Benz-Chrysler-fuzja
5. Matthew C. Keegan, ‘DaimlerChrysler: Merger or Acquisition’, November 03, 2005. http://www.articlecity.com/articles/business_and_finance/article_4092.shtml
6. Bill Vlasic, Bradley Stertz, Collins Business 2001, Taken for a Ride: How Daimler-Benz Drove Off with Chrysler
7. Lauren Woods, Pressbox, How Daimler Chrysler Merger Failed, Retrieved May 18, 2007. http://www.pressbox.co.uk/detailed/Business/How_Daimler_Chrysler_Merger_Failed_122434.html
About the Author
is Enrooled To Practice Before The Internal Revenue Service.(Enrolled Agent) – 2009
B.S Accounting. West Chester University. PA – Present
A.S Accounting. Montgomery County Community College. PA – May, 2009
B.S Electronic Engineering. Taegu University. South Korea – Feb. 2004