DaimlerChrysler: Post Merger News Case Analysis


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DaimlerChrysler: Post Merger News Case Analysis

  1. 1. Ishpreet Singh – 12P139 Karan Jaidka – 12P141 Kshitij Agrawal – 12P142 Kshitij Ahuja – 12P143 Manav Gupta – 12P146 Vikas Jain – 12P178 Group 1 – Strategic Management – II PGPM 2012-14
  2. 2.  May 1998: Daimler-Benz and Chrysler announced that they would merge to create DaimlerChrysler  Opportunities were identified to increase sales, create new markets, reduce costs, realize economies of scale for the new entity  Short term synergies of about USD 1.4 billion were seen  Challenge foreseen: To integrate two dynamic companies into one
  3. 3.  Formation of the “DreamTeam”  Two-tiered board system  Supervisory Board: responsible for appointments and approval of major decisions  Board of Management: responsible for executing company strategy  However, integration efforts were marred by bickering between the Americans and the Germans  Differences in management styles, processes, cultures and working styles caused problems
  4. 4.  DaimlerChrysler claimed to have successfully completed the merger within 10 months itself  Restructuring activities  Board of Management reduced from 17 to 14 members (Two Chrysler executives removed)  Creation of a separate Sales and Marketing Council  Automotive business broken into 3 distinct brand divisions  Automotive Council formed to drive innovation and sharing of knowledge and technologies  The new structure sort of recreated the old Chrysler corporation
  5. 5.  No synergies through platform amalgamation  Industry volumes falling, introduction of fewer products  Initial increases in numbers were attributed to merger synergies  However, by 2000, stock prices were on the decline  No more disclosure of information of merger synergies (received badly by analysts)  Financial problems  Q3FY00 operating loss at USD 512 million  EPS down by 75%, while GM’s EPS was up by 22%  Expecting dwindling sales, 7 plants were made idle  Share price hit an all-time low
  6. 6.  Phase 2 technology sharing efforts were problematic  Cultural issues were prevalent  By the end of Q1FY01, losses touched USD 2.7 billion  Cost cutting strategies were adopted  19,500 employees and 1,000 contractual workers fired in 2001  Non-product spending cut by over 58%
  7. 7.  Easy part of the deal: Negotiations and signing  Putting the deal together and making it work is the hard part (Integration)  Adequate due diligence of target companies is of paramount importance  Bringing together two different companies from two different countries, different cultures (corporate and real) is a humungous task  Clear and specific post-merger strategy should be in place even at the pre-merger stage  Leadership effectiveness for better integration is a must