Daimler-Chrysler case study

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A presentation on how the M&A can fail.

Transcript of Daimler-Chrysler case study

  • Daniyar Meiremgaliyev SP20906 Shahab Ravanparast SP20689 Ng Jing Xing (Jason) SP20952 Yap Chiou Wen (Thomas) SP20996 Yadgar Taha SB20876 Harvir Singh SB21008
  • Agenda Industry Company backgrounds Motives of merger and acquisition Success and failures of the merger Cultural Problems Analysis of post-merger Conclusion
  • Daimler-Benz Gottlieb Daimler, 1834-1900 1889 Developed engines with Wilhelm Maybach 1891 Fredrick Simms Bought UK patent rights to Daimlers engine 1893 Formed a company called The Daimler Motor Syndicate Ltd. 1924 Merged with Karl Benzs Benz & Cie to form Daimler-Benz. Built cars under the name Mercedes-Benz.
  • Chrysler Gottlieb Daimler, 1834-1900 1889 Developed engines with Wilhelm Maybach 1891 Fredrick Simms Bought UK patent rights to Daimlers engine 1893 Formed a company called The Daimler Motor Syndicate Ltd. 1924 Merged with Karl Benzs Benz & Cie to form Daimler-Benz. Built cars under the name Mercedes- Benz.
  • Porters 5 Model Figure 1. Porters 5 model, conducted to DC merger
  • Figure 2. Porters 5 model, conducted to DC merger January 12, 1998 Schrempp and Eaton met to discuss the possible merger May 6, 1998 Merger agreement was signed in London May 7, 1998 Merger agreement made public. Surprised the business community, including the employees of Daimler Benz and Chrysler. Only 20 -30 managers were in the loop May 14, 1998 Daimler-Benz Supervisory Board OKs the merger July 23, 1998 European Commission approved the merger July 31, 1998 Federal Trade Commission approved the merger August 6, 1998 DaimlerChrysler announced that their shares would trade as global stock instead of ADRs September 18, 1998 97% of Chrysler shareholders and 80% of Daimler-Benz shareholders approved the merger November 12, 1998 Merger completed
  • Reasons for mergers and acquisition: Daimler-Benzs motives: Access to U.S market Reduce cost of production Fear of loosing their competitive Chryslers motives: Avoiding another crisis Improve R&D department Access to Europe market
  • Successes of DaimlerChrysler The largest Industrial Merger, Before 1998 Increasing market Power Flexible Ways of Integration over two different countries
  • SWOT analysis of DaimlerChrysler Strengths Merger Combined two strong Companies A leader of innovation Strong Existing Products Brands Record Revenue and Increasing Market Shares Weaknesses Combined two different Cultures Employees have been leaving at a high rate Harder to inspire Vision
  • Opportunities Quality and engineering Skills Distributions into key markets New distributions of networks Threats Does not have corporate brand identity Competitors Behind in the research and marketing of hybrid autos.
  • Opposite management thinking Millions spent on post-merger cultural sensitivity workshops Rifts in business practice remained intact Workshops didnt help in changing management sentiment Authoritative Germans vs. Creative Americans German replaces an American as Chryslers president DaimlerChrysler Failures
  • "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 -JuergenSchrempp (DaimlerChrysler CEO )
  • 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 mans land It bled cash for almost an year, owing to mismanagement
  • Daimler-Benzs Culture Daimler saw itself as the foremost innovator of the automobile industry with a rich engineering and quality heritage (see Figure 3).
  • Chryslers Culture Chrysler was a trendsetter for new designs, short development times referring to its organizational flexibility and a sense for market opportunities (see Figure 4) Figure 2: Chryslers Cultural Web
  • The comparison of cultures The major differences, that we have elaborated comparing these two companies are in the below table 1.
  • Inability to Manage Cross-Culturally A potential issue that should not have been ignored was the strong cultures and language barriers between the U.S. and Germany American business practices are very informal. In Germany they employ a rigid hierarchical corporate structure. Perceived benefits were never realized due to a lack of coordination, and inability to manage across the two cultures with a central authority
  • Attempt to pick a middle spot The Germans and the Americans had been out of sync from the start Resistance to work together DaimlerChrysler de-merger MANAGING CULTURAL ISSUES
  • Daimlers Strategic Position Focus on original strategic position Cars Trucks Note : Sales increased by 12% Mercedes C class sold successfully Good strategic position after demerger 2006 2007 2008 Net Profit For Mercerdes 3.8 4 1.4 0 1 2 3 4 5 EuroBillion Net Profit For Mercerdes
  • Was the Chrysler demerger inevitable? DaimlerChryslers view Chrysler loss US$ 1.8 billion in 2nd 2000 and will loss US$2 billion in 2001 Up-front costs for new models and offer discount to clear stocks. Chrysler loss half Daimler Chrysler Group net profit for 2001. Chrysler had loss of Euro 1 billion in 2003 Takeover bid
  • Chryslers view Chryslers engineering functions. The key for surviving -develop a new range of mid-size sedans, develop hybrid and electric vehicles. Lacks resources and capabilities to operate as an independent company Now rebuild the company. Cut cost and return to profitability quickly
  • Mercedes Marketing Strategy Safety, Luxury, & Precision Engineering Life Style Oriented Fun Loving Approachable Energetic
  • Mercedes Future Strategy Blind spot detection Lane Keeping Assistance Night View Attention Assistance Monitor Road Assistance Mercedes Benz S400 hybrid Features
  • Our recommendations ``a successful merger would require the two companies to abandon their own business cultures and create a new distinct one. Thomas Stallkamp Former President of Chrysler