case 59 diamlerbenz a g negotiations between diamler and chrysler

5/28/2018 Case 59 DiamlerBenz a G Negotiations Between Diamler and Chrysler

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Version 2.2

DAIMLER-BENZ A.G.: NEGOTIATIONS BETWEEN

DAIMLER AND CHRYSLER

In January 1998, Jrgen Schrempp, CEO of Daimer!"en# $.%., approache& ChryserCorpora'ion(s chair an& chief e)ecu'i*e officer +CEO -oer' J. Ea'on aou' a possiemerger, ac/uisi'ion, or &eep s'ra'egic aiance e'0een 'heir '0o firms. $s Schrempp argue&

he '0o companies are a perfec' fi' of '0o ea&ers in 'heir respec'i*e mar3e's."o'h companies ha*e &e&ica'e& an& s3ie& 0or3forces an& successfu pro&uc's,

u' in &ifferen' mar3e's an& &ifferen' par's of 'he 0or&. "y comining an&u'ii#ing each o'her(s s'reng'hs, 0e 0i ha*e a preeminen' s'ra'egic posi'ion in 'hegoa mar3e'pace for 'he enefi' of our cus'omers. 4e 0i e ae 'o e)poi'ne0 mar3e's, an& 0e 0i impro*e re'urn an& *aue for our shareho&ers.1

$s Schrempp recoun'e& a'er

I 5us' presen'e& 'he case, an& I 0as ou' again. he mee'ing as'e& aou' 16

minu'es. I &on(' 0an' 'o crea'e 'he impression 'ha' he 0as surprise&. 4hen 'hemee'ing 0as o*er, I sai&, 7If you 'hin3 I(m na*e, 'his is nonsense I(m 'a3ing, 5us''e me. :e smie& an& sai&, 7Jus' gi*e me a chance. 4e ha*e &one somee*aua'ions as 0e an& I 0i phone you in 'he ne)' '0o 0ee3s I 'hin3 he


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e*aua'ions as 0e an& I 0i phone you in 'he ne)' '0o 0ee3s I 'hin3 he

Schrempp presen'e& 'he 'eam 0i'h se*era chaenges 'o e)poi' 'he enefi's of comina'ionG 'opreser*e an& s'reng'hen 'he Daimer!"en# ran&sG 'o minimi#e 'he a&*erse effec's ofcomina'ion on empoyees an& e)ecu'i*esG an& 'o ma)imi#e 'he shareho&ers( *aue. Schrempprefec'e& on 'he *arie'y of 'he 'erms of 'he &ea 'ha' 'he Daimer 'eam sough', an& imme&ia'eycon*ene& a mee'ing 'o pan 'he 'eam(s nego'ia'ion s'ra'egy.

Chrysler Corporation

In 192@, 4a'er B. Chryser, a mu'imiionaire an& 'he presi&en' of "uic3 a' age ?H,s'orme& ou' of 'he hea& office of %enera =o'ors +%= 0i'h 'he i&ea of s'ar'ing his o0n carcompany. he Chryser Corpora'ion0as officiay aunche& in 192? 0i'h 'he in'ro&uc'ion of 'heChryser Si), an& rapi&y gre0 'o ecome 'he 'hir& arges' au'oma3er in $merica. 4hieChryser manage& 'o sur*i*e 'he %rea' Depression in'ac', aor proems an& rampan'mismanagemen' rough' 'he company 'o 'he rin3 of financia ruin se*era 'imes +for e)ampe19H


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& & fi & i Ch i & i

high in 'he spor'!u'ii'y mar3e' &espi'e increase& compe'i'ion from ne0 pro&uc's, especiay a''he 'op an& o''om en&s of 'he mar3e'.

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Chryser(s cars 0ere so& un&er 'he Chryser, Do&ge, an& Bymou'h ran& names.Chryser(s arger cars +such as 'he S'ra'us 0ere price& simiary 'o =erce&es!"en#(s o0er!mi&&e!cass car +in si#e, 'he C!Cass. 4hie Chryser(s cars 0ere much arger an& morepo0erfu 'han 'he =erce&es *ersion of simiar price, 'he cars ac3e& =erce&es(s a''en'ion 'o&e'ai in manufac'uring an& ran& image. $' 'he o''om en& of 'he range, Chryser offere& 'heDo&geFBymou'h ;eon. +See Exhibit 1for Chryser(s saes in 199< an& 1996.

Chrysler product development and manufacturing strategy

Chryser 0as 3no0n for i's shor' concep'!'o!mar3e' cyce for ne0 pro&uc'sG o0&e*eopmen' cos'sG efficien' pan'sG goo& suppier rea'ionsG an& crea'i*e s'ying. Vehice&e*eopmen' 'ime for Chryser &ecine& 'o 2? mon'hs in 199< from


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Chrysler international strategy

In 'he 199@s, Chryser sus'an'iay in'erna'ionai#e& i's saes. In'erna'iona *ehice saes+saes ou'si&e ;or'h $merica rose from ess 'han H@,@@@ uni's in 199@, 'o 26,@


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0i'h 'he urgeoning Aor& =o'or Company, e& 'he '0o companies 'o merge in 192< 'o formDaimer!"en#. he company shif'e& 'o mii'ary pro&uc'ion &uring 4or& 4ar II, u' Daimeregan manufac'uring cars again in 19?6. "y 'he 198@s, Daimer an& i's =erce&es ran& ha&ecome synonymous 0i'h premier /uai'y an& craf'smanship. Aush 0i'h i's success, Daimeregan a program of &i*ersifica'ion in 'he mi&!198@s, in'en&ing 'o 'ransform 'he company in'o asef!&escrie& 7in'egra'e& 'echnoogy group 0i'h pro&uc' ines ranging from 'ranspor'a'ion 'oaerospace 'o microeec'ronics 'o 0hi'e goo&s. nfor'una'ey, a s'ring of argey unprofi'aeac/uisi'ions in 'he a'e 198@s ef' Daimer unfocuse& an& inefficien', cumina'ing in a s'aggering

+%erman &eu'sche mar3 DE=H.6 iion oss for 199H +'he arges' peace'ime oss e*er y a%erman company. n&er 'he &irec'ion of 'he ne0 chief e)ecu'i*e officer, Jrgen Schrempp,Daimer egan 'o she& unprofi'ae usiness uni's, 'o re'urn 'he company 'o i's core usiness ofma3ing high /uai'y au'omoies, an& 'o mo*e 'o0ar& a more 7$merican s'ye of managemen'&esigne& 'o enhance 'he shareho&ers( *aue. "y 1996, 'he company ha& re'urne& 'o profi'aii'y0i'h recor& saes.

Daimler-Benz"s diversification under #euter

4i'h chair Ear& -eu'er, 0ho 'oo3 office in 1986, Daimer un&er'oo3 a series ofac/uisi'ions amoun'ing 'o an es'ima'e& M


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Daimer!"en# $.%. Schrempp 'o& 'he hea&/uar'ers 'ha' i' 0ou& cos' 'oo much 'o fi) 'he uni'an& recommen&e& i's sae. he oar& 'oo3 his a&*ice, an& af'er Schrempp successfuy &i*es'e&'he uni' in 198?, he re'urne& 'o ecome *ice!presi&en' of =erce&es!"en# of Sou'h $frica. In198H, he 0as appoin'e& presi&en' of 'he Sou'h $frican susi&iary. 0o years a'er, he 0as cae&ac3 'o S'u''gar', %ermany, 'o 5oin 'he Daimer!"en# managemen' oar& an& hea& 'he Daimer!"en# aerospace susi&iary. :e orches'ra'e& 'he purchase of 'he Du'ch aircraf' ma3er Ao33er, aspar' of -eu'er(s &i*ersifica'ion program, a mo*e 'ha' 0ou& 'urn ou' 'o e a mis'a3e a'er on.

Daimler-Benz restructuring under &chrempp

4hen Schrempp 'oo3 charge, cu's in &efense spen&ing 0ere hur'ing 'he aerospace uni'(smii'ary opera'ions. $&&i'ionay, cancea'ions of commercia aircraf' or&ersL'he resu' ofairines( spen&ing cu's 'o e compe'i'i*e in 'he &eregua'e& airine mar3e'L0ere pinching 'he$irus opera'ion. =ore 'han @@ suppose&y firm or&ers 0ere cancee& in a'e 199? an& eary199H. his represen'e& more 'han haf of 'he company(s ac3og an& 'he e/ui*aen' of aou' @mon'hs( 0or'h of pro&uc'ion. he 0or&0i&e 'ruc3 usiness 0as sumping, an& 'he =erce&es

au'o opera'ions ha& no' ye' reco*ere& from 'he eary 199@s onsaugh's of e)us an& Infini'i.

During his 'enure as chair, Schrempp pro*e& 'o e a mas'er of oar&room poi'ics, 0i'h'he aii'y 'o ma3e &ecisions /uic3y an& a 0iingness 'o 'a3e ris3s. :e focuse& on shareho&er*aue, some'hing 'ha' 0as no' 'ypicay &one y European companies. Despi'e Daimer(s is'ingon 'he ;>SE an& 'he increase in 'ransparency of Daimer!"en#(s accoun's resu'ing from 'heaccoun'ing changes, Daimer(s 'op e)ecu'i*es 0ere no' in 'he hai' of pu''ing s'oc3ho&ers firs'.o se 'he i&ea of shareho&er *aue, Schrempp s'ar'e& caing coeagues a' ran&om an& as3ing'hem for Daimer(s curren' s'oc3 price. $' firs', he sai&, 7Se*en &i& no' 3no0 an& 'hree 0ere0rong. ;o0a&ays 'hey can 'e me. Schrempp ins'i'u'e& 'he rue 'ha' e*ery singe usiness a'Daimer ha& 'o achie*e a 12K re'urn on capi'a +-OC or e capae of achie*ing a 12K -OC inh f f If i & i & & S h f %

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he 0as force& 'o ac3 &o0n. On 'he o'her han&, Schrempp 0on praise from 'he in*es'ors. heresu's of 'he res'ruc'uring 0ere impressi*e. $s sho0n in 'able 1, af'er a recor& ne' oss in 199Hof M.16 iion, one of 'he igges' annua osses in European corpora'e his'ory, Daimer pos'e&profi's of aou' M1.< iion for 199< an& M1.8 iion efore a 'a) cre&i' in 1996.

ae 1. Daimer!"en#(s opera'ing profi's an& re*enues y &i*ision.+in DE= miions

1(() 1((*+perating

,rofit

#evenues +perating

,rofit

#evenues

Bassenger cars ,12 H,892 ,@9@ ?


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Daimler-Benz commercial vehicle segment

4hen Schrempp 'oo3 o*er, 'he 'ruc3 usiness ha& een hur' y a comina'ion of 0ea3European mar3e's, fierce price compe'i'ion from Vo*o an& Scania, Daimer(s ou'mo&e& 'ruc3an& us &esigns, an& 'he company(s high!cos' pro&uc'ion me'ho&s. In Europe, Daimera&&resse& 'hese proems 'hrough pro&uc'ion of a series of ne0 hea*y!&u'y 'ruc3s, igh'er 'ruc3s,an& *ans. In a&&i'ion, 'he company 0en' face 'o face 0i'h i's unionsLs're'ching 'he oun&ariesof %ermany(s coec'i*e argaining agreemen's 'o 'he imi'L'o nego'ia'e pro&uc'i*i'y

agreemen's on a pan'!y!pan' asis.

=any 'ruc3 opera'ions 0ere reoca'e& 'o paces i3e ur3ey an& "ra#i so 'ha' roughyhaf of a Daimer 'ruc3 pro&uc'ion 0as ou'si&e %ermany. Daimer(s .S. 'ruc3 opera'ion,Areigh'iner, 0as in a &ifferen' posi'ion. he company ha& een oos'ing mar3e' share since 'heeary 199@s. Areigh'iner(s share in 'he ;or'h $merican mar3e' in hea*y!&u'y Cass 8 'rac'or!'raier cas rose from 2K in 199H 'o 29K in 199< an& @K in 1996. he aim 0as 'o increase 'heshare 'o more 'han ?@K y 2@@@. he effor' 0as hepe& y 'he 1996 purchase of Aor& :ea*y

ruc3s. =a3ing 'he &ecision 'o uy Aor&(s hea*y!&u'y 'ruc3 opera'ion 'oo3 ony '0o 0ee3s.7n&er 'he pre*ious sys'em, i' 0ou& ha*e 'a3en si) 'o eigh' mon'hs, Schrempp no'e&.6

Daimler-Benz passenger car segment

he au'omo'i*e &i*ision 0as hur' in 'he eary 199@s y ne0 u)ury cars in'ro&uce& yoyo'a +e)us, :on&a +$cura, an& ;issan +Infini'i. hese cars compare& in /uai'y, comfor',an& s'ying 'o =erce&es, u' 'hey cos' much ess. Bar' of 'he price &ifference 0as &ue 'oe)change ra'es, 0hich ga*e 'he Japanese a 'emporary a&*an'age. %ermany(s high aor cos'shur' Daimer 'oo. $' more 'han M@ an hour pus enefi's, 'he coun'ry(s aor cos' 0as 'he0or&(s highes'. Daimer aso suffere& from an'i/ua'e& an& inefficien' pro&uc'ion me'ho&s. "y

hi i 3 2@ h i& i 3


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manage& 'o pu off efore 0i'h i's C!Cass, 0hich 0as un*eie& in 1982. 4i'h 'ha' e)ampe inmin&, Schrempp pu' his au'hori'y ehin& 'he =!Cass spor'!u'ii'y *ehice, 'he $!Cass 'o0n car,an& 'he Smar' Car 5oin' *en'ure 0i'h S0a'ch. In a&&i'ion, he e)'en&e& 'he e)is'ing E!Cass, C!Cass, an& S!Cass pro&uc' ines y in'ro&ucing ne0 mo&es. $s Schrempp sa0 'hings, 'hecommon fac'or 0i'h a 'hose cars 0as 'ha' 'hey ser*e& no' 'he mass mar3e', u' a niche ofpeope 0ho 0ere prepare& 'o pay e)'ra for percei*e& /uai'y an& 'he =erce&es name. ha', hefigure&, offere& some pro'ec'ion from 7&o0n au'o cyces.

he =!Cass spor'!u'ii'y *ehice, ui' in =erce&es(s facii'y in uscaoosa, $aama,0hich opene& in 1996, ha& a is' price s'ar'ing a' aou' MH,@@@ an& compe'e& 0i'h 'he i3es of'he Aor& E)porer an& 'he Jeep %ran& Chero3ee. he $aama facii'y 0as =erce&es(s firs'ma5or foray in'o car ma3ing ou'si&e %ermany. he =!Cass 0as *ery successfu from i's aunchin a'e 1996. In eary 1998, a po'en'ia uyer ha& 'o 0ai' up 'o eigh' mon'hs for &ei*ery. here0ere pans 'o increase 'he pro&uc'ion capaci'y of 'he $aama pan' y 2@K in 1999, from


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Daimer ha& aso in'ro&uce& a s'ream of ne0 mo&es, incu&ing 'he ne0 E!CassG 0agonsfor 'he C!CassG an& 'he ne0 S, a sma roa&s'er 'ha' ha& a s'ee roof 'ha' re'rac'e& in'o 'he'run3. his car, 0hich so& a' M?@,@@@, foo0e& "=4(s R an& Borsche(s "o)s'er 'o open up acompe'ey ne0 spor's car niche in 'he ni'e& S'a'esLsome0here e'0een 'he M2@,@@@ =a#&a=ia'a an& 'he M6@,@@@ Borsche 911. he S represen'e& a more you'hfu image for =erce&es.4ai'ing is's for 'his car 0ere as ong as '0o years in 'he mi&&e of 1996. In 1996, Daimerin'ro&uce& i's C coupe, foo0e& y a C con*er'ie in 1998. $so in 1998, Daimere)pec'e& 'o in'ro&uce an a!ne0 u)ury S!Cass mo&e, foo0e& perhaps in 2@@1 or 2@@2 y 'he

=ayach, an e*en more u)urious car 'ha' +'he pro'o'ype sugges's cou& come 0i'h suchfea'ures as a ho'!an&!co& &rin3 ar, an in!car persona compu'er, an& a arge!screen V.

Bassenger!car saes y mo&e an& y geographica area are sho0n in 'able 2.

ae 2. Daimer!"en# passenger car saes in 1996.

nits

+@@@. Change

from 1((*

,rice

Category

4or& 61H 11of 0hich $!Cass 6 M1?,@@@

C!Cass ?9 2? MH,@@@of 0hich C 22 M?@,@@@

S ?6E!Cass 266 H

S!FS!Cass


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Design and production o achie*e i's goa of pro&ucing cheaper cars 0i'hou' penai#ingprofi'aii'y, Daimer ro3e 'he rues on ho0 'o succee& in 'he au'o usiness. Con*en'iona0is&om sugges'e& 'ha' au'oma3ers shou& re&uce 'he numer of &ifferen' pa'forms on 0hich'hey ui& 'heir &ifferen' chassis. ha' 0as 0ha' oyo'a, Chryser, an& V4 ha& &one. "u'=erce&es pro&uce& a ne0 pa'form for each of i's ne0 car ines, an& e)pec'e& money on each a'a pro&uc'ion e*e 'ha' 0as eo0 'he rea3e*en poin' for 'he igger fu!ine manufac'urers.Sharing pa'forms 7is cer'ainy cos' effec'i*e, u' I &on(' 'hin3 i'(s 'he 0ay 'o &o i', sai&Schrempp. 7If you 5us' pu' a &ifferen' o&y on 'he same ase, a you are &oing is fooing

cus'omers. ha'(s no' 'he 0ay 'o 0in saes.9 Daimer!"en# re&uce& i's e*e of *er'icain'egra'ion u', a' ?@K, Daimer 0as s'i more *er'icay in'egra'e& 'han Chryser a' 2HK.

'nternational strategy Daimer so& i's cars 0or&0i&e an& ha& a goa &is'riu'ionne'0or3. $s &epic'e& in 'able /, i' 0as aso increasingy oca'ing i's au'omo'i*e pro&uc'ionou'si&e %ermany.

ae . Vehice opera'ions y geographic area.

,roduction

0ocations

&ales

+rganization

0ocations

#evenues

+in miions DE=,ersonnel

Europe 21 ,?H HH,9


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shareho&ers an& i's 0or3ers, an& o*ersa0 'he managemen' oar&. he sys'em ga*e each oar&cer'ain chec3s an& aances so 'ha' nei'her &omina'e& 'he firm.

Daimler-Benz labor unions

%ermany ha& a &ua sys'em of 0or3er represen'a'ion. $' 'he company e*e, 0or3ers ha&'he righ' 'o par'icipa'e in managemen' &ecisions. n&er 'he %erman sys'em of co&e'ermina'ion,amos' haf of 'he sea's of 'he "ufsichtsratha& 'o e fie& 0i'h aor represen'a'i*es in arge

en'erprises. 4hie 'hey cou& e ou'*o'e& in 'he super*isory oar&, 'heir access 'o informa'ionan& &ecision!ma3ing ga*e 'hem a s'ronger han& in aor nego'ia'ions. 4or3er councis(+etriebsrte*aso represen'e& 'he in'eres's of 'he 0or3ers a' 'he company e*e. hey ha& a*oice in socia an& personne ma''ers.

$' 'he na'iona e*e, 16 arge aor unions, 0hich 0ere organi#e& on an in&us'ry asis,0ere primariy responsie for in&us'ry!0i&e coec'i*e argaining of 0ages an& saaries, an&o'her ma''ers such as 'he shor'ening of 'he 0or30ee3 an& *aca'ion 'ime. I% =e'a, 'he po0erfu

me'a0or3ers union, 0hich ha& 2.6 miion memers, represen'e& 'he au'omoie in&us'ry(s0or3ers.

Compare& 'o o'her coun'ries, 'he coec'i*e argaining process for 0ages 0asaccompanie& y rea'i*ey fe0 s'ri3es in %ermany. -easons con'riu'ing 'o 'his o0 s'ri3e ra'e0ere 'he e)is'ing confic' resou'ion mechanism as 0e as %erman aor a0s, 0hich oige&managemen' an& aor groups 'o see3 peacefu sou'ions 'o confic's, as 0e as generaycoopera'i*e rea'ionships e'0een capi'a an& aor.

Executive compensation

C i f % i i ifi h f h i $ i

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'rends in the !lobal Automobile 3ndustry

"y eary 1998, recen' e*en's sugges'e& 'ha' 'he compe'i'i*e an&scape of 'he au'omoiein&us'ry ha& change& permanen'y. 4hie 'he announcemen' of aiances an& mergers 0as as'ea&y occurrence o*er 'he years, 'he na'ure an& fre/uency of 'hese &eas ha& ecome morein'ense. Brice 4a'erhouse es'ima'e& 'ha' 0or&0i&e in 1996, au'o firms s'ruc3 6H@ mergers oraiances 0i'h a 'o'a *aue of M28 iion. Consis'en' 0i'h o'h 'he airines an& 'he'eecommunica'ions in&us'ries, 'here 0as a more asser'i*e a''emp' 'o consoi&a'e payers in 'he

in&us'ry, 'herey crea'ing a ne0 form of compe'i'ionL'he 'ruy goa car company. Ony asma numer of au'oma3ers, i3e oyo'a, V4, Aor&, an& %=, ha& 'he capaii'y 'o go goa0i'hou' ma5or ac/uisi'ions. hese firs'!'ier firms cou& pursue a 0or&0i&e s'ra'egy y uyingsmaer pro&ucers 0i'h recogni#e& name ran&s. he man'ra ecame, 7If you 0ish 'o succee&,you ha*e 'o e 0or&0i&e. S'an&ar& N Boor(s D-I pre&ic'e& 'ha' o*er 'he ne)' 'en years 'here0ou& e a re&uc'ion in 'he numer of in'erna'iona pro&ucers, 0herey 'he 9 curren' pro&ucers0ou& e re&uce& 'o aou' 2@ ma5or companies.

Car manufac'urers ha& een opera'ing in'erna'ionay for many years. hey ha& e)por'e&mo&es 'o o'her coun'ries, asseme& an& engineere& cars an& 'ruc3s for foreign mar3e's, an&source& from non!.S. suppiers for years. In a&&i'ion, 'hese firms ha& 'a3en e/ui'y s'a3es innumerous foreign par'ners. he is' incu&e&, for e)ampe, Aor& an& Jaguar, Aor& an& =a#&a,%= an& Saa, %= an& Su#u3i, an& "=4 an& -o*er. >e' effor's 'o form 'ruy goa companies0ere of a &ifferen' or&er. here 0ere /ui'e simpy *ery fe0 successes a' ui&ing an& &is'riu'inga global car. he mo'i*a'ions &ri*ing Chryser an& Daimer!"en# e)'en&e& eyon& 'he&e*eopmen' of a goa car, ho0e*er. ypicay, consoi&a'ion 0as &ri*en y a series of fac'ors.

hese fac'ors 0ere a responses 'o 'he pressures of a &ynamic, changing in&us'ry. I' 0as'oo simpe 'o say 'ha' 'he 0or& 0as changing. here 0ere reen'ess cos' an& 'ime pressures

h i h & i & i & i f & i i & h & & i

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un&eru'ii#e& 0or3ers, an& sunorma re'urns. he 'ension aroun& 'hese &ecisions 0as 'hepoi'ica pressure agains' shu''ing &omes'ic pan's, aying off 0or3ers, an& searching for o0er!cos' aor an& manufac'uring si'es in &e*eoping coun'ries. Ironicay, 'his mo*emen' ofmanufac'uring 'o &e*eoping coun'ries par'y e)acera'e& 'he proem of e)cess capaci'y. =anyof 'he pan's in $sia, for e)ampe, ha& een ui' 0i'h go*ernmen' essing as an a''emp' 'opromo'e manufac'uring an& crea'e fairy high!paying 5os, no' 'o men'ion 'ha' a homegro0n au'oin&us'ry is a manner of na'iona pri&e. Coun'ries 0i'h emerging economies, i3e "ra#i, sa0 anau'omo'i*e in&us'ry as a 0ay 'o increase 'he aii'y 'o e)por' pro&uc's an& s'imua'e in'erna

gro0'h. >e' a numer of 'he smaer companies, par'icuary in $sia, 0ere a' ris3 i3e ia an&:yun&ai. 4hie no' ac/uisi'ion 'arge's per se, o'h 0ere i3ey 'o e sough' as 5oin' *en'urepar'ners. =any eie*e& 'ha' 'he consoi&a'ion 0ou& 'a3e ou' capaci'y, 0hich 0ou& re&uce 'hepricing pressures cause& y 0or&0i&e e)cess pro&uc'ion capaci'y.

Development costs

he cos's associa'e& 0i'h a aspec's of ne0 mo&e &e*eopmen' ma&e i' *ery &ifficu' for

a sma manufac'urer 'o sur*i*e, since 'hose cos's 0ere aoca'e& o*er a smaer *oume of cars.De*eopmen' cos's incu&e& &esign an& 'ooing, emissions engineering, eec'ronics, an&manufac'uring process &esign. O'her nonpro&uc'ion cos's associa'e& 0i'h manufac'uringincu&e& 'he e)pense of in3ing suppiers an& &eaers eec'ronicay an& goay. $''emp's 'oshor'en 'he pro&uc'ion an& &esign cyces 0ou& pay off o*er 'ime, u' 'hese re/uire& asus'an'ia ini'ia in*es'men'. $ &rama'ic re&esign of a car cou& incu&e 'he use of igh'er!0eigh' ma'erias, 'he use of a'erna'i*e fue sources, an& changes 'o o'h 'he engine an& 'hera3ing sys'em. he price 'ag for 'hese changes 0ou& 0orry e*en 'he arges' companies.

&ourcing and supply-chain costs

!1H!


16/46

4ar5et access and product diversity

he aii'y of niche manufac'urers 'o sur*i*e o*er 'he ong 'erm 0as imi'e& o'h ygeography an& y 'he narro0 focus of 'heir pro&uc' ines. $' 'he core of merger &iscussions in'he au'omo'i*e in&us'ry of 'he 199@s 0as 'he no'ion of compemen'ari'y he po'en'ia par'ners(aii'y 'o fi gaps in o'h mar3e's an& pro&uc's. One assump'ion 0as 'ha' ony fu pro&uc' ine,goa pro&ucers 0ou& sur*i*e. =ar3e' access 0as affec'e& o'h y e)is'ing &is'riu'ionne'0or3s an& y na'iona poicy, 0hich &ic'a'e& 'he manner in 0hich a foreign au'oma3er cou&

en'er a hos' coun'ry. In some ins'ances, oca pro&uc'ion migh' e re/uire&, or 'here migh' erues regar&ing a cer'ain percen'age of oca con'en' in 'he cars so&. $'hough 'he merger faie&,par' of 'he ra'ionae for 'he Vo*o!-enau' marriage 0as a compemen'ari'y in mar3e' presence.In a&&i'ion, 'he pro&uc' ines &i& no' o*erap much, an&, on 'he surface, each seeme& 'o fi gapsin 'he o'her(s offerings. "=4 0as a''rac'e& 'o -o*er, ecause i's pro&uc's roa&ene& "=4(spro&uc' offering 0i'hou' &iu'ing 'he up!mar3e' "=4 image 0i'h smaer cars an& spor'!u'ii'y*ehices. "=4(s s'ra'egy 0as 'o encourage -o*er(s "ri'ishness 0i'h ig in*es'men's in 'heni'e& ing&om, 0hie sharing par's an& impro*ing /uai'y an& &is'riu'ion.1

0egal and financial considerations

I' 0as i3ey 'ha' 'he consoi&a'ion among companies 0ou& pro*i&e access 'o capi'a an&capi'a mar3e's 'ha' migh' o'her0ise ha*e een imi'e& ei'her ecause of regiona iases or si#econsi&era'ions. o e goa in scope an& si#e no' ony es'o0e& more fa*orae ra'es on 'heissuance of s'oc3 or &e', u' i' aso roa&ene& 'he range of a*aiae financia mar3e's. Aorins'ance, as a enefi' of consoi&a'ion, a foreign!ase& company migh' 'ra&e in 'he ni'e& S'a'esas a goa s'oc3 ra'her 'han 'hrough 'he use of $merican Deposi'ory -eceip's +$D- 'ha'en'aie& compe) regua'ory issues an& of'en a&&e& e)pense. he poin' is 'ha' such goa firmsse' 'he pace for 'he goai#a'ion of 'he e/ui'y mar3e's. In a&&i'ion, a secon&!or&er effec'

!1


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ae ?. Bo'en'ia enefi's 'o o'h Chryser an& Daimer!"en#.

BE7E83'& '+ C9#:&0E# &9A#ED BE7E83'& BE7E83'& '+ DA340E#-BE7;

"oos's none)is'en' posi'ion in

Europe

Impro*e& /uai'y from D!"

engineering

%i*es a Europeanmanufac'uring ase

=igh' gain from us'er of

=erce&es name pa'e

"roa&ens ine 'o u)ury en&

ses some pro&uc'ion capaci'y

aroun& 'he 0or&

Impro*es 'echnica capaii'y,

o0er 0arran'y cos's

Impro*e& safe'y fea'ures

a*aiae

M1.? iion in

pre'a) cos' sa*ings,e)pec'e& in 1999Ge)pec'e& 'o gro0 'oM.@ iion y2@@1, an& a' ra'e ofinfa'ion 'hereaf'er

Burchasing po0er

"e''er capaci'y

u'ii#a'ion

echnoogy 'ransfer

E)pan&s manufac'uring an&

&eaership opera'ions in .S.

Crea'es oppor'uni'y for 5oin'

&e*eopmen' a' o0er cos's

E)pan&s pro&uc'ion aii'y in 'he. S.

Comines 0i'h 'ruc3s, 'he

igh'er ines from Chryser

:eps aign cos' s'ruc'ure

"orro0s crea'i*e s'ying

Jeep a&&s 'o 'he image for SV

+uran an& rugge&

&trategic Alternatives

$s companies e)amine& 'he op'ions a*aiae 'o 'hem 'o 5oin forces an& a''emp' 'oaccompish goas 'ha' 0ou& e &ifficu' 'o achie*e aone, 'here 0ere a numer of a'erna'i*es 'oconsi&er. he au'omo'i*e in&us'ry ha&, in recen' years, 0i'nesse& a numer of aiances +some in0hich e/ui'y s'a3es 0ere 'a3en an& o'hers 0here 'here 0as no e)change of o0nership as 0e

!16!


18/46

Alliances

ni3e a merger, an aiance comines separa'e companies for 'he purposes of 'hecoaora'i*e effor's &einea'e& y 'he par'ners. he separa'e organi#a'ions remain au'onomoususinesses, each re'aining i's o0n go*ernance s'ruc'ure an& opera'ing processes an& principes.Join' ac'i*i'ies, share& &ecision ma3ing, coor&ina'ion of ac'i*i'ies, an& open ines ofcommunica'ion are a par' of 'he gue 'ha' ho&s an aiance 'oge'her. $n aiance is a /uasi!organi#a'iona form in 0hich separa'e an& &is'inc' firms 5oin 'o accompish goas 'ha' 0ou& e

&ifficu' 'o achie*e aone. he chaenge is 'o &e*eop a managemen' process 'ha' encourages 'hecoopera'i*e effor's of 'he par'ners. o 'he e)'en' 'ha' one en'ers an aiance 0i'h a 'ra&i'iona7comman& an& con'ro men'ai'y, i' can e &ifficu' 'o accompish goas One canno' con'ro0ha' one &oes no' o0n. $iances, if propery forme& an& nur'ure&, can accompish 'he samegoas as *er'icay in'egra'e& firms 0i'hou' 'he a&&i'iona cos' ur&en. $iances are coaora'i*e*en'ures in 0hich companies ac3no0e&ge 'heir in'er&epen&ence an& ac' in 'he in'eres' of 'heaiance. In con'ras' 0i'h a merger or ac/uisi'ion, 'here remains 'he possiii'y of oppor'unis'iceha*ior 0herey one par'ner ac's in i's o0n sef!in'eres' 'o 'he &e'rimen' of 'he o'her. ha' is,

aiance par'ners ha*e mu'ipe 'as3s hey 0or3 'oge'her 'o accompish 5oin' goas, u' asomain'ain in&i*i&ua agen&as an& o5ec'i*es. 4hen 'hose &ifferen' goas confic', 'he aiancesuffers an& 'he propose& a&*an'ages are os'. In 'his regar&, aiances are /ui'e fragie an& aresu5ec' 'o pressures an& 'ensions no' foun& in *en'ures 0here '0o or more firms rein/uish 'heirso*ereign'y 'o ecome one cen'ray manage& an& con'roe& organi#a'ion 0i'h one se' of goas.$'hough aiance con'rac's are i3ey 'o e use& 'o formai#e 'he 'erms an& con&i'ions of area'ionship, aiances are he& 'oge'her y 'rus' an& commi'men' 'o 'he share& *ision of 'heaiance par'ners.

$oint ventures

!18!


19/46

Join' *en'ure par'ners some'imes s'rugge e/ui'ay 'o &e'ermine 'he *aue of eachpar'ner(s con'riu'ion 'o 'he aiance. Aor e)ampe, one par'ner migh' ring har& asse's 'o 'he JV,0hie 'he o'her rings in'eec'ua capaii'y +for e)ampe inno*a'ions, 'echnoogy, 3no0e&geof mar3e's. he proem ecomes ho0 'o &e'ermine a fair e)change ra'e. Simpy, 'he /ues'ionmigh' arise :o0 many ne0 i&eas e/ua a fac'ory 0or'h MH miion con*er'e& for 'he nee&s of 'he5oin' *en'ureT

,referred relationships

Of 'he four rea'ionship 'ypes &iscusse& here, preferre& rea'ionships are 'he eas' formaan& 'herefore 'he mos' *oa'ieG 'hey are more 'ransac'iona in na'ure an& more su5ec' 'o 'he0hims of 'he par'ners. ies an& in3ages 'en& 'o e oose an& *ie0e& as ess ong!'erm in na'ure.Aor ins'ance, par'ies may &eci&e 'o 'ra&e 0i'h each o'her, an& may &o so for many years.:o0e*er, 'he e*e of communica'ions an& 'he con'en' of informa'ion share& ne*er go eyon&'he 'ransac'ion a' han&. In an aiance, as oppose& 'o 'hese more arms!eng'h &eaings, par'ners'en& 'o e)change informa'ion germane 'o onger!'erm pans an& s'ra'egic re/uiremen's o*er 'ime.

Breferre& rea'ionships sugges' 'ha' a 'hings eing e/ua, par'ners 0i con'inue 'o in'erac', u''here is a much ess episo&ic na'ure 'o 'he rea'ionship. Commi'men' 'o 'he rea'ionship 'en&s 'oe o0er 'han in any of 'he o'her rea'ionships men'ione& ao*e. hese 3in&s of rea'ionships areof'en foun& e'0een uyers an& suppiers 0here one is gi*en 'he s'a'us of a preferre& suppier y*ir'ue of cer'ain s'an&ar&s eing me' +for e)ampe cer'ifica'ion or ISO9@@2. In a&&i'ion, 'heremigh' e)is' a ong!'erm rea'ionship 'hrough 0hich o'h par'ies share a &egree of comfor' an&'rus'. $' 'he same 'ime, &isengagemen' is rea'i*ey easy 'o accompish, o'h ecause of 'hena'ure of 'he in3ages an& 'he fac' 'ha' 'he psychoogica on& e'0een par'ners is rea'i*ey0ea3. 'able < compares 'he *arious rea'ionship 'ypes &iscusse& here.

!19!


20/46

ae H. $n array of rea'ionships.

0o +nership 9igh

Commitment

93!9

0ong-term focus

S'ra'egicsourcing

Join' *en'ure Join' *en'ure $c/uisi'ionFmerger

E*ergreencon'rac's

Jus'!in!'ime+JI an&s'an&ar&ou'sourcing

-NDpar'nerships'o co&e*eop

Co!manufac'uringpro&uc'ion

Breferre&suppiers

-eseerrea'ionships

Share& infoaou'mar3e'sF-ND

Commitment

0+=

&hort-term focus

Commo&i'ypurchasingor&er

Coaora'i*ea&*er'ising

Degree of

commitment

oosein3ages

S'an&ar&resources

Share& fun&s Share& e/ui'y 4hoyo0ne&

Chryser(s nego'ia'ion 'eam 0ou& nee& 'o assess 'hose a'erna'i*e forms of comina'ion, payingpar'icuar a''en'ion 'o 'he rea'i*e a''rac'i*eness of 'he ou'righ' ac/uisi'ion of Chryser yDaimer *ersus 'he o'her 'ypes of &eas. Schrempp ha& specificay men'ione& an ac/uisi'ion. I'0as -oer' Ea'on(s e)pec'a'ion 'ha' 'he nego'ia'ing 'eam 0ou& seriousy e)pore 'his pa'h as 'he

!2@!


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Aeruary. On Aeruary H, 1998, 'he Chryser oar& 0as riefe& on 'he &iscussion e'0eenSchrempp an& Ea'on.

On Aeruary 12, 1998, Ea'on an& %ary Vaa&e, e)ecu'i*e *ice presi&en' an& chieffinancia officer of Chryser, me' 0i'h Schrempp an& Dr. Ec3har& Cor&es, 'he Daimer!"en#oar& memer responsie for corpora'e &e*eopmen' an& &irec'y manage& usinesses, 'o&iscuss 'he possiii'y of comining 'he '0o companies. Aoo0ing 'ha' &iscussion, 'hey &eci&e&'o consu' 0i'h 'heir respec'i*e financia a&*isors an& 'o mee' again on Aeruary 18, 1998.

On Aeruary 16 an& 18, 1998, Cor&es an& represen'a'i*es of %o&man Sachs +Daimer(smerger a&*iser me' 0i'h Vaa&e an& represen'a'i*es of Cre&i' Suisse Airs' "os'on +Chryser(smerger a&*iser 'o &iscuss *arious 'ransac'ion s'ruc'ures. During 'he course of 'hose &iscussions,Vaa&e s'a'e& 'ha' i' 0as impor'an' 'o Chryser 'ha' any po'en'ia 'ransac'ion ma)imi#e i'sshareho&er *aueG 'ha' i' e 'a)!free 'o Chryser(s .S. s'oc3ho&ers an& 'a)!efficien' forDaimerChryser $.%.G 'ha' i' ha*e 'he pos'!merger go*ernance s'ruc'ure of a 7merger of e/uasG'ha' i' ha*e op'ima aii'y 'o e accoun'e& for as a pooing of in'eres'sG an& 'ha' i' resu' in 'he

comina'ion of 'he respec'i*e usinesses of Daimer!"en# an& Chryser in'o one puiccompany. Cor&es in&ica'e& 'ha' i' 0as impor'an' 'o Daimer!"en# 'ha' any po'en'ia 'ransac'ionma)imi#e i's s'oc3ho&ers( *aueG 'ha' i' e 'a)!free 'o Daimer!"en#(s %erman s'oc3ho&ers an&'a)!efficien' for DaimerChryser $.%.G an& 'ha' 'he sur*i*ing en'i'y of any comina'ion e a%erman s'oc3 corpora'ion, 'herey enhancing 'he i3eihoo& of accep'ance of 'he 'ransac'ions ya!impor'an' cons'i'uencies of Daimer!"en#. During 'hose mee'ings, *arious 'a), corpora'e, an&managemen' issues 0ere &iscusse& 0i'h a *ie0 'o0ar& &e*eoping a 'ransac'ion s'ruc'ure 'ha'accommo&a'e& 'he par'ies( o5ec'i*es.

Vaa&e an& Cor&es 0ere sche&ue& 'o mee' again in 'he firs' 0ee3 of =arch, 'o &iscuss'heir 'eams( progress. $' 'ha' 'ime, Vaa&e re/ues'e& 'ha' Daimer!"en# pro*i&e Chryser 0i'h i's

!21!


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ae aluation of Chryslers Euity

-ecen' share price [email protected]

"oo3 *aue per share M1aluation of Daimlers Euity-ecen' share price M99.


23/46

informa'ion on peer firms in 'he au'omoie manufac'uring in&us'ry. Exhibit 16gi*es 'he recen's'oc3 price his'ory of o'h firms, as 0e as es'ima'es of 'heir e'as an& sigmas, or percen'age*oa'ii'y of 'heir s'oc3 prices, ase& on 'ra&ing on 'he ;e0 >or3 S'oc3 E)change +;>SE.Exhibit 1


24/46

7eed for shareholder vote

Shareho&er *o'ing pro*isions infuence& &ea &esign y affec'ing 'he spee& 0i'h 0hich a&ea cou& e cose&, an& 'he possiii'y for in'erference y arge shareho&er groups. In 'heni'e& S'a'es, a *o'e of 'he shareho&ers re/uire& 'he &is'riu'ion of a prospec'us an& pro)ys'a'emen', an& 'he sche&uing of a specia shareho&er mee'ing. he concern aou' in'erference0as 'ypicay impor'an' for ac/uirers, 0ho feare& secon&!guessing y in*es'ors or ou'si&ers. 0o'ypes of &eas 0ou& re/uire *o'es y Daimer shareho&ers. he firs' 0as 0here a arge numer

of ne0 shares 0ou& e crea'e&, as in a arge s'oc3!for!s'oc3 ac/uisi'ion. he secon& 0as as'a'u'ory merger in 0hich o'h firms 0ou& e e)'inguishe& an& an en'irey ne0 firm +;e0co0ou& emergeL'his re/uire& a *o'e of o'h firms( shareho&ers.

Accounting treatment

In 'he ni'e& S'a'es, merging firms cou& accoun' for 'heir merger on a purchaseasis oron a pooling-of-interestsasis. %eneray, pooing accoun'ing resu'e& in higher earnings per

share for 'he ne0 firm, ecause i' &i& no' en'ai 'he crea'ion of goo&0i 'ha' ha& 'o e amor'i#e&un&er 'he ni'e& S'a'es( generay accep'e& accoun'ing Brincipes +%$$B. In or&er for 'he'ransac'ion 'o e accoun'e& for on a pooing asis, i' ha& 'o mee' se*era 'es's, of 0hich 'hese0ere primary

1. con'inui'y of o0nership in'eres's +a' eas' 8@K of 'he shareho&ers of 'he ac/uire& firmha& 'o remain shareho&ers of 'he ne0 firm

2. e/ua si#e of 'he '0o firms. each en'i'y mus' ha*e een in&epen&en' of 'he o'her for '0o years prior 'o 'he &ea

?. 'he comina'ion mus' e effec'e& in a singe 'ransac'ionLcon'ingen' payou's 0ere no'

!2?!


25/46

share repurchases, an& rea) 'he poison pi 'rigger from 1@K 'o 1HK of shares ou's'an&ing.4hie er3orian ha& agree& 'o pos'pone his a''emp's 'o 'a3e o*er 'he firm, his in'eres' 0as argeenough 'o infuence o'her in*es'ors in any Chryser shareho&er *o'e on a &ea. er3orian 0as3no0n 'o e a sophis'ica'e& in*es'or, someone 0ho 0ou& proay fa*or a 'a)!&eferre& &ea.Deu'sche "an3, 'he Emira'e of u0ai', an& er3orian emerge& from a s'oc3!for!s'oc3ac/uisi'ion as significan' shareho&ers in 'he ne0 firm. herefore, i' 0ou& e a&*isae 'o o'ain'he a&*ance suppor' of 'hese in'eres'e& par'ies.

'ax treatment

Some &ea s'ruc'ures cou& 'rigger an imme&ia'e 'a) iaii'y for 'he seing +Chrysershareho&ers, on 'he &ifference e'0een 'he cos' asis of 'heir shares an& 'he consi&era'ionrecei*e&. O'her s'ruc'ures 0ou& &efer 'his iaii'y. %eneray, 'he 'a)!&eferre& &eas +or 7'a)!free &eas, as 'hey 0ere popuary cae& en'aie& 'he ac/uisi'ion of 'he 'arge' firm(s s'oc3 0i'h'he s'oc3 of 'he uyer, or 'he uyer(s susi&iary. Deas 'ha' en'aie& paymen' 0i'h cash or no'es,or 'ha' en'aie& 'he purchase of asse's, 0ou& 'rigger an imme&ia'e 'a) iaii'y. he opinion of a

'a) a&*isor, an& u'ima'ey a ruing, or e''er, from 'he . S. In'erna -e*enue Ser*ice, 0ou&confirm 0he'her any con'empa'e& s'ruc'ure 0ou& e 'a)ae or 'a)!free.

Applicable la

he ne0 corpora'ion cou& e incorpora'e& in %ermany or 'he ni'e& S'a'es. Ifincorpora'e& in %ermany, i' 0ou& e su5ec' 'o %erman a0s. If incorpora'e& in 'he ni'e&S'a'es, 'hen .S. a0s 0ou& appy.

!overnance

!2H!


26/46

+fficial language

I' 0as cus'omary in cross!or&er mergers an& ac/uisi'ions for 'he &ea 'erms 'o specify'he officia anguage for 'he firm, pos'!consumma'ion.

Executive compensation

he con'rac' migh' aso specify any senior e)ecu'i*e compensa'ion for 'he foreseeae

fu'ure. his 0ou& e impor'an' if 'he anays's sough' 'o e/uai#e compensa'ion across 'he ne0ymerge& firm.

0isting on stoc5 exchanges

Consi&ering 'he comine& shareho&ers of o'h companies, a s'oc3!for!s'oc3 &ea 0ou&ea*e $merican an& %erman shareho&ers 0i'h a ma5or in'eres' in a mu'ina'iona firm. If shares0ere is'e& ou'si&e 'he home coun'ry of 'he shareho&ers, i' 0ou& ma3e 'hose shares some0ha'

ess i/ui&, an& ess a''rac'i*e. $greeing in a&*ance on 0here 'he shares 0ou& e is'e& 0ou&infuence 'he *o'es of 'he shareho&ers on any merger or ac/uisi'ion.

!2


27/46

E)hii' 1DA340E#-BE7; A!G 7E!+'3A'3+7& BE'=EE7

DA340E# A7D C9#:&0E#

Chryser Corpora'ion ni' Saes ren&s

!26!

1(() 1((* Change

.S. re'ai mar3e'Car saes M6


28/46

E)hii' 2

DA340E#-BE7; A!G 7E!+'3A'3+7& BE'=EE7

DA340E# A7D C9#:&0E#Chryser Corpora'ion Income S'a'emen'

+*aues in miions of .S. &oars

,roFected

1((< 1((* 1(() 1(( 1((( 2 21 22

-e*enues MH,19H.@ M


29/46

E)hii'

DA340E#-BE7; A!G 7E!+'3A'3+7& BE'=EE7

DA340E# A7D C9#:&0E#Chryser Corpora'ion "aance Shee's

+*aues in miions of .S. &oars

!29!


30/46

E)hii' ?DA340E#-BE7; A!G 7E!+'3A'3+7& BE'=EE7

DA340E# A7D C9#:&0E#

Chryser Corpora'ion DCA Vaua'ion+*aues in miions of .S. &oars

!@!


31/46

E)hii' H

DA340E#-BE7; A!G 7E!+'3A'3+7& BE'=EE7

DA340E# A7D C9#:&0E#Daimer!"en# $.%. Income S'a'emen'

+*aues in DE= miions, e)cep' per!share amoun's,roFected

1((< 1((* 1(() 1(( 1((( 2 21 22

-e*enues 1@2,98H.@ 1@


32/46

E)hii'

case 59 diamlerbenz a g negotiations between diamler and chrysler

Documents

e mar3es

e eicae

e reurn

e sying

e smie

o companies

o 0ee3s

meeing o