daimler chrysler , m&a study - spjcm

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

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Page 1: Daimler Chrysler , M&A study - SPJCM

Daimler-ChryslerA Match made in Heaven goes through HELL!!

Page 2: Daimler Chrysler , M&A study - SPJCM

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)

Page 3: Daimler Chrysler , M&A study - SPJCM

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”

Page 4: Daimler Chrysler , M&A study - SPJCM

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

Page 5: Daimler Chrysler , M&A study - SPJCM

The Deal

Announced-6th of May 1998

Merger of Equals

Market Cap -US $92 Billion

Stock-swap Deal 57%

43%

Total Shareholding-Daimler Chrysler

Daimler Benz

Chrysler

Page 6: Daimler Chrysler , M&A study - SPJCM

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

Page 7: Daimler Chrysler , M&A study - SPJCM

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

Page 8: Daimler Chrysler , M&A study - SPJCM

Why did the Merger Fail?

Page 9: Daimler Chrysler , M&A study - SPJCM

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

Page 10: Daimler Chrysler , M&A study - SPJCM

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 )

Page 11: Daimler Chrysler , M&A study - SPJCM

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

Page 12: Daimler Chrysler , M&A study - SPJCM

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

Page 13: Daimler Chrysler , M&A study - SPJCM

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

Page 14: Daimler Chrysler , M&A study - SPJCM

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 !!

Page 15: Daimler Chrysler , M&A study - SPJCM

•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

Time to Call it off contd…

Page 16: Daimler Chrysler , M&A study - SPJCM
Page 17: Daimler Chrysler , M&A study - SPJCM

Rohit Gadia

Saurabh Chube

Sunitha Sureshbabu

Viraj Parekh

Thank You

Compiled by Students of SP Jain Center of Management – Singapore / Dubai, data from secondary sources only.