What was considered a Merger of equals, turned to be a massacre?

There can be a huge problem with internationalization with M&A and companies need a global strategy to manage operations. However implementation can be a challenge, especially when multiple nationalities and countries are involved. Enter Daimler Chrysler. The horizontal $36 billion merger of American carmaker Chrysler and Germany’s Daimler-Benz is a powerful demonstration of the globalization of the world economy.

The first problem that exists here is that both companies aspire fierce national pride in their homelands, which both companies thought could be put aside for progress in a highly competitive car industry. The first question that should be asked with internationalization with M&A is, do we have a global strategy to manage worldwide business leverage? And if so, can we implement it despite there being challenges with differences in nationalities and countries? Though this is a significant issue between the firms, the main problem causing the failed merger or takeover is that the terms of the transaction were misrepresented as a ‘merger of equals’ to close the deal.

When Shrimp went to Bob Eaten (Chrysler CEO) over potential merger, the meeting lasted 18 minutes before an agreement was made. How on earth in an 18-minute meeting could anyone decide on a merger? It takes me 18 minutes to decide on a filling for my sandwich!!! Never mind a $36 billion deal. The answer behind this could be due to the CEO’s overestimating the potential synergies between the firms as well as overestimating their ability to generate returns and as a result, have engaged in a value-destroying merger.

I guess in some cases this merger would be a brilliant idea, as when looking at both corporations they have something huge to offer. Daimler-Benz for instance is a strong luxury German brand with high-end cars, whilst Chrysler targets the low-end consumer in America. Joint together, they could take a large proportion of the market share and become a powerful force in the automobile industry. If only things were that simple. As mentioned above, culture can be the demon in all companies and in order for a successful merger, their needs to be synergies between firms. In order to minimize the culture clash, Schrempp decided to allow both firms to maintain their existing cultures. Can you identify the problem here? At first, it looks as though Chrysler have been given the freedom they want, however within 19 months two American CEO’s were dismissed and German management took over. This looks like complete ignorance if you ask me. Later it was only then that Schrempp admitted that the merger of equals was actually a takeover. Instead of gaining a competitive advantage, the merger was pushed into a deep crisis. This global ambition between he two firms triggered one of the most devastating law suits in corporate history, lasting up to 10 years before being sold for a mere $7.4billion.

  

If we look at how M&A’s has changed today, unlike the Daimler-Benz failure, Deloitte states that 2015’s deals have promised annualised $150-$200 billion in cost savings. Although like the Daimler-Benz merger, synergies are somewhat poorly reported and updates on cost savings may be provided for a year or two, but past this as it dry’s up. The question then, if management were acting in the best interest of shareholders, then shouldn’t M&A’s be successful? Even today, the idea of shareholder value maximisation is a grey area for management because managers are known to act in their own best interests, whether that is for power (Daimler-Benz) or greed. As a result, even today, shareholders are still paying for the deals many years after the event. Managers need to start proving there worth.