Daimler Chrysler , M&A study - SPJCM

Slide 1: Daimler-Chrysler A Match made in Heaven goes through HELL!!

Slide 2: About Daimler-Benz  Europe’s Largest Industrial Company  Employs 300,000 people  Operations in  Passenger Cars  Commercial Vehicles  Aerospace  Services  Directly Managed Businesses (Rail, Automotive Electronics and Diesel Engines)

Slide 3: About Chrysler  US Based Company  Operations in  Cars  Minivans  Sport-utility vehicles  Trucks  “We produce cars and trucks that people will want to buy, will enjoy driving and will want to buy again”

Slide 4: Why the Merger?  For Chrysler- Merger or Perish  For Daimler-Benz- The Perfect Storm  Daimler not able to take advantage of the booming US Economy  High costs for Daimler  Create a much larger globally based enterprise to compete in major markets of the world

Slide 5: The Deal Total Shareholding-  Announced-6th of May Daimler Chrysler 1998  Merger of Equals  Market Cap -US $92 Daimler Billion 43% Benz  Stock-swap Deal 57% Chrysler

Slide 6: Highlights of the Deal  Merger of Equals  Largest Industrial Merger ever  Horizontal Merger  DaimlerChrysler- World Leader in Transportation  Fifth Largest Company  World class products and brands complement each other  No plant closures or lay- offs planned

Slide 7: Synergies  World Leader in Transportation  Revenue Enhancement  Minimum overlap in Markets and Customers  Complete Spectrum of Products  Lower Costs and Higher Productivity  Cheaper Labor  Exchange of Technology  Higher Bargaining Power

Slide 8: Why did the Merger Fail?

Slide 9: Diametrically opposite management thinking  Millions spent on post-merger cultural sensitivity workshops  Rifts in business practice remained intact  Workshops didn’t help in changing management sentiment  Authoritative Germans vs. Creative Americans  German replaces an American as Chrysler’s president

Slide 10: Mismanagement Galore! "The Merger of Equals statement was necessary in order to earn the support of Chrysler's workers and the American public, but it was never reality” - Juergen Schrempp (DaimlerChrysler CEO )

Slide 11: Lack of governance  Juergen Schrempp and Bob Eaton did not follow coordinated course of action during transition phase  Low level contact between the two top level management guys  The American dynamism faded under subtle German pressure  Chrysler started drifting into no man’s land  It bled cash for almost an year, owing to mismanagement

Slide 12: Cultural Differences  The merger can be described as a “marrying up/marrying down” phenomenon  Employee bias was rampant in the merged organization  Chrysler’s market share in Europe, before and after merger – 2% !!  Chrysler and Daimler-Benz's brand images were founded upon diametrically opposite premises  Brand bias added to the woes of the company

Slide 13: More problems  Daimler relied heavily on quality and Chrysler inclined towards being cost-effective  Allegations of “fraud and deceit” on former Daimler executives  Adding fuel to the fire was the closing out of Chrysler’s Plymouth brand

Slide 14: Time to Call it off  Falling share price – Easy target for PE firms  Falling sales and huge losses owing to volatile US auto industry  Synergies not working out to be as expected  Chrysler hell bent on producing “big” cars  DaimlerChrysler’s market cap in the recent years was almost equal to what Daimler’s was before the merger !!

Slide 15: Time to Call it off contd… •In August 2007 the deal was finally called off •Chrysler was sold to Cerberus Capital Management •Daimler AG received $8.9 billion from the PE group •Cerberus got 80.1% stake in Chrysler •Daimler also paid $810 million for debt repayment of DaimlerChrysler

Slide 17: Thank You Compiled by Students of SP Jain Center of Management – Singapore / Dubai, data from secondary sources only. Rohit Gadia Saurabh Chube Sunitha Sureshbabu Viraj Parekh