Mergers & Acquisitions

Irfan Habsjah, MBA,CMA CLASS 1

Topic:
CASE ANALYSIS: THE FAILURE OF DAIMLER-CHRYSLER MERGER

Banking and Finance 2009

Group 1:

Hesty Oktariza (014200900073) Renate Shafrila D.P (014200900131) Rista Marliyani (014200900197) Sabrina (014200900139) Siti Rachmanita (014200900198)

Date of Submission: July 6th ,2011

Table of Contents

Introduction ........................................................................................................................ 3 a. Reasons for Mergers ................................................................................................ 3 b. Daimler SWOT ........................................................................................................ 3 c. Chrysler SWOT ........................................................................................................ 4 Case Analysis ...................................................................................................................... 5 a. The Post-Merger Integration at the Daimler-Chrysler ............................................ 5 b. Why Daimler-Chrysler Failed ................................................................................. 6

Recommendation ................................................................................................................ 9 Conclusion ........................................................................................................................... 10 References ..................................................................................................................... ......11

The Failure of Daimler-Chrysler Merger

INTRODUCTION
On May 7 1998 the German Daimler-Benz AG and the American Chrysler Company announced a merger of equals. Because of the worldwide industry development, cultural differences and internal problems on the American side the merger turned out not to be as successful as expected.

REASONS FOR MERGER

Both merger and acquisition growth of market share or sales can be realized instantly. The economy of scale in mergers of companies in the same industry is very im portant. There are some reasons for Daimler and Chrysler to merge their company. Daimler-Benz deal with the situation because they think most of the automotive company which manufactures luxury cars have done mergers or acquisitions in order to expand mar et k share outside of its market share at the time. Production of luxury cars experiencing overcapacity (saturated market because demand is smaller). On the other side, Chrysler did the merger because Chrysler is a company that have trendy and fashionable cars, so Chrysler has a chance to succeed in the marketplace and has the obsession to achieve cost effectiveness. Chrysler automotive company is small, so that when the American economy declines, Chrysler was affected. Competition i the segment minivans n and sport utility vehicles (SUV) which is dominated by Chrysler is becoming increase rapidly, so Chrysler weak, because the competitor is getting higher. Furthermore, the merger is expected to make huge savings by combining purchasing and other operations. It is also aimed to reduce total research and development costs.

DAIMLER SWOT ANALYSIS

STRENGTH. Mercedes is one of the strongest global brands and being sold in more than 200 countries. Daimler has technological, engineering and quality strength and regarded as the best engineered cars in luxury cars sector. WEAKNESS. Due to small production volume of Mercedes-Benz, suppliers transfer innovations to competing brands. R&D cost-on-turnover was far above the industry average and basically a German manufacturer has huge factories OPPORTUNITY. Luxury car brands are not independent, except for niche play. DM covered a much broader range than its competitors although it remains as a kind of Transportatio n Company. More critical observers mentioned that Daimler used the opportunity. The Mercedes brand boomed. With the Chrysler volume of 3 million units there was the chance of savings in purchasing which would result in net-earnings of Mercedes.

The Failure of Daimler-Chrysler Merger

THREAT. Unsuccessful attempt of Mercedes with Smart brand that trying to expand outside its traditional target segment. Japanese rivals producing similar quality & technology with lower costs. There are many of competitors in the cars segment, even likeconsolidating industry.

CHRYSLER SWOT ANALYSIS

STRENGTH. Chrysler has been fighting for survival to compete strong competitor. Chrysler has successful market and has trendy and fashionable design. Mostly bought technology from suppliers and it has the best cost effectiveness time to market design and development times set world standards. WEAKNESS. Chrysler is the smallest and most vulnerable of U.S. Big three, is the leanest manufacturer. They had been to the edge of bankruptcy twice and its position in car segment is weakening OPPORTUNITY. Chrysler just only focused on cars & light trucks not the others vehicle. Chrysler has quality and engineering skills and they are including a fast followe in r technology in the cars and truck segment. THREAT. Emerging distribution systems in US car industry like megadealers, e-commerce, and car management companies. The declining in US economy could hit Chrysler harder than the larger Big Three rivals and the Japanese competitors.

The Failure of Daimler-Chrysler Merger

CASE ANALYSIS
A. The Post-Merger Integration at the Daimler-Chrysler
Post merger intergration is one of many keys to success in mergers and acquisitions and DaimlerChrysler AG also did the Post Merger Intergration during their merger process. Post Merger Integration divided into three phases: Start up phase, project implementation phase, and business transformation phase. Start up phase should be done before the merger process started. Usually it can be done during the due diligence process. It is best to begin start up phase for post -merger integration very early, because the next step is starting to make the scheme of post merger integration before the mergers committee. The next phase is project implementation phase which is can differentiated by hard or soft factors of success. The problem was the integration between Daimler and Chrysler cannot go to further phase because they just to concentrate in solving the organization cultures. Both of the companies declare that they did merger of equal which is mean they have to develop new cultures for n management. Unfortunately they always ew worked with the original culture that can make the clash inside the integration process. That is why they cannot go to business transformation phases since none of them willing to understand each other cultures. The scheme below was the post merger integration scheme when DaimlerChrysler did the merger.

The Failure of Daimler-Chrysler Merger

B. Why Daimler-Chrysler Failed

Afterall, it was seemed that all effort in the merger of Daimler-Benz and Chrysler failed in its integration process due to several factors. Those main reasons of why did the merger of Daimler and Chrysler fail are explained as follow; cultural clash, mismanagement, lack of due diligence and the Asian challenge. y Culture Clash Culture clash is the misunderstandings, and disagreements between different cultures . Cultural issue is one of the most important problem in combining cross boarder company. The diversity of culture from each region will take effect in work attitude, quality, system of authority, etc, and create the business culture itself. In this merger, Damiler-Benz and Chrysler come from two different cultures, which are the Eastern Culture of Germany from Daimler Benz and the Western Culture that is represented by Chrysler. These nationality culture were different in terms of organization, working style and compensation. Daimler-Benz perceived itself as a foremost innovator of the automotive industry with a rich engineering and quality heritage building the upscale cars. Below are the summary of Daimlers culture. Culture     Formal Traditional Mannerly Bureaucratic Structure  High authority  Strong hierarchy  Litle payment disparity     Products High Quality High Price Luxurious Smaller Sized Cars

Daimler was then a Holding-Company with 21 business-units. Its organisation was hierarchical and bureaucratic which why decisions took often a long time. Responsibilities were strictly separated. The board -members had their own assistants who prepared position papers which were discussed in the meetings. All board-members got almost the equal compensation with a major stake fixed. Part of the routines and rituals was to work late hours and at weekends, to smoke and getting beer and pizza to the working desks.

The Failure of Daimler-Chrysler Merger

In addition, Daimlers story is full of engineering successes as Diesel-Engines or ABS. Mercedes has got a luxury-status. The company was led in 1998 by a powerful, strong-willed chairman who had it successfully restructured and focused on it s core-competences.

Chrysler, in the other hand, was a trendsetter for new design, short development time referring to its organizational flexibility and a sense of market opportunities. Their cultures are summarized as below. Culture      Relaxed Informal Flexible Risk Taking Free form     Structure Top down management Lean staff Highly centralized Team Work     Products Attractive Very competitive price Comfortable driving Moderate speed

Chryslers story included several near-bankruptcies. In the 90s a team of enthusiasts around Bob Lutz took over and created the legendary Chrysler Spirit. These charismatic executives were the real power base of Chrysler and made it to the most profitable car manufacturer in the world. Chrysler was an upcoming company and challenged the established Ford and GM. Chrysler was unconventional. There were no status symbols for the executives. Chrysler was lean, through and through. It was cross-functional organized; the board members were also responsible for a part of one business. Teams were working self-responsible around platforms. Lower-levels were encouraged to make own decisions, even without executives app roval. There was a strict costmanagement at Chrysler. At opposite to Daimler executives earned a lot more and worked on deadlines instead of working late hours. At first, the existing differences is not really matter, but soon they become obvious problem during the daily work. James Holden, Chrysler president from September 1999 through November 2000, described what he saw as the "marrying up, marrying down" phenomenon. "Mercedes was universally perceived as the fancy, special brand, while Chrysler, Dodge, Plymouth and Jeep were the poorer, blue collar relations". This fueled an undercurrent of tension, which was amplified by the fact that American workers earned appreciably more th their German counterparts, an sometimes four times as much. All the tension then led to deeper distrust and dislike between Daimler and Chrysler existing employees and executives. These two sets of brands, whether they ever willing to share platforms or features, would have lost their intrinsic value. Thus the culture clash seemed to exist as much between products as it did among employees.

The Failure of Daimler-Chrysler Merger

Because it is part of the German Business Culture to give commands instead of discussing with lower-levels, the German managers decided in most cases. The organisational structure emerged through the German decision -making-process, but processes in the new Chrysler unit were not really controlled. Therefore, wrong management decisions kept undiscovered until Chrysler had to report massive losses. y Mismanagement From sthe start, the leaders of Daimler and Chrysler announced their combination as a merger of equal. But that was a scam. Chrysler was bought and was subsequently treated like a stepchild, not a partner. The domination by one partner over the other was led the company into the mismanagement. As a result, the managers who had built Chryslers success in the past were no more left. Some remained on staff, feeling withdrawn, inef fective and eclipsed by the Germans in Stuttgart. Others left for a more promising future at G.M. or Ford. The American dynamism faded under subtle German pressure, but the Germans were not strong enough to impose their own managers. y Lack of Due Diligence and The Asian Challenge Daimler-Benz never did due diligence before it bought Chrysler, they never looked into the future to see whether Chrysler could afford to be competitive with the others in the industry, especially when the Asian automotive players such as Toyota and Honda entered the U.S market.

The Failure of Daimler-Chrysler Merger

RECOMMENDATION
y In the case of DaimlerChrysler, both parties should truly willing to cooperate wholeheartedly and to accept changes and to enter compromises in order to make this merger of the two companies a success. y In order to avoid the failure of cross-border M&As, it is of very high importance to consider the important aspects even before the actual merger takes place. y It is important to take into account in which areas it will come to cultural discrepancies and how they will influence day -today work. y To be a successful company did not succeed in joining their strengths and complementing each others weaknesses to overcome a crisis together. y Communicate the merger as Daimlers acq uisition of Chrysler to avoid further uncertainties. y Be aware of national differences which can affect the business culture you must , observe the business culture before you do the merger with the professional and better quality of the observer. y y Build a good R&D-department. Channels of communication must be open and consider a mediator at meetings hired help (if it is necessary). y Avoid cultural stereotyping with contextual differences, share knowledge, and exploit the merger. y These basic cultural issues must be addressed before the merger or acquisition is completed. Cultural conflicts are the most common reasons behind failed mergers and acquisitions. y This is a diagnosis of cultural relations between companies prior to a merger and a determination of the extent to which cultural clashes are likely to occur. y The cultures of the two organizations must be sure that they are compatible. If they are not compatible, the two parties can identify before the merger or acquisition what needs to be done to fit the two cultures together and whether it is worth the effort
The Failure of Daimler-Chrysler Merger

Conclusion
A large number of cross-border M & As fail because of the difficulties are not insurmountable. as well as the merger between the two car manufacturers Daimler Benz and Chrysler Corporation. This promising merger failed because of cultural differences that can not be bridged between two car manufacturers, Daimler-Benz and Chrysler Corporation. Therefore, observing business culture and deciding on leadership decision rights well is better from the beginning. Besides that, hiring the outside help (consultants) to aids in the acquisition process also could help them to find solutions. In the case of DaimlerChrysler, the two sides have never really willing to cooperate wholeheartedly and accept change and enter a compromise to make the merger of two successful companies. To avoid the failure of cross-border M & As, it is important to consider the important aspects even before the merger actually happens. And also important to identify and define common goals and appropriate to describe certain norms and rules to business processes. Furthermore, good communication strategies and far-reaching is required. In this case can be concluded that the merger of Daimler -Benz and Chrysler Corporation failed because of the differences in culture a management wrong decisionnd making.

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The Failure of Daimler-Chrysler Merger

References

The DaimlerChrysler Merger http://cs.bilgi.edu.tr/~oykua/doc/DaimlerChryslerMerger.pdf http://mba.tuck.dartmouth.edu/pdf/2002-1-0071.pdf

The DaimlerChrysler Merger A Cultural Mismatch http://cascavel.ufsm.br/revistas/ojs-2.2.2/index.php/reaufsm/article/viewFile/2506/1536

Lessons in Post-Merger Integration http://en.oboulo.com/daimler-chrysler-lessons-in-post-merger-integration-63020.html

How Daimler, Chrysler Merger Failed http://www.pressbox.co.uk/detailed/Business/How_Daimler_Chrysler_Merger_Failed_122434.html

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The Failure of Daimler-Chrysler MergerReferences