DaimlerChrysler:

Post-Merger Integration Phase

Magda Piekarska, Katarzyna Wojdyła,

Dimitri Dukarski, Michael Nagel

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DaimlerChrysler case | Mergers & Acquisitions

Table of Content

Content

1. Introduction
2. History & Key Facts
3. Facing new realities
4. Merger of Equals
5. Post-Merger Integration

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DaimlerChrysler case | Mergers & Acquisitions

Table of Content

Content

1. Introduction
2. History & Key Facts
3. Facing new realities
4. Merger of Equals
5. Post-Merger Integration

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DaimlerChrysler case | Mergers & Acquisitions

History of the Merger

Creating an automotive powerhouse



$132 billion annual revenues



5th largest auto maker in the world



428 000 employees



the largest industrial merger

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DaimlerChrysler case | Mergers & Acquisitions

M&A Facts

High failure rates in corporate mergers

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DaimlerChrysler case | Mergers & Acquisitions

M&A Facts

Pitfalls in corporate mergers

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DaimlerChrysler case | Mergers & Acquisitions

Daimler-Benz AG

Key facts



The oldest car manufacturer in Germany



1980s ->Changes: diversification strategy into electronics & airplane

industry



1995->the largest loss



US style :



„Mr Shareholder Value”



performance related stocks

options for top management



Product porfolio- 35->23



1990s-internationalization

of its operations

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DaimlerChrysler case | Mergers & Acquisitions

Daimler-Benz AG & Chrysler

Timeline

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DaimlerChrysler case | Mergers & Acquisitions

Chrysler Corporation

Key facts



Since 1950s - the smallest of

the American „Big 3” car manufacturers



1980s- close to bankruptcy



1993-focus on Chrysler‟s

core activities & on reducing

its dependence on North

American market



1990s-less than 10% of its

cars sold outside US

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DaimlerChrysler case | Mergers & Acquisitions

Development in the 90s

Steering towards the merger

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DaimlerChrysler case | Mergers & Acquisitions

Table of Content

Content

1. Introduction
2. History & Key Facts
3. Facing new realities
4. Merger of Equals
5. Post-Merger Integration

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DaimlerChrysler case | Mergers & Acquisitions

No. 1.

General Motors – over 8 mln units

No. 4.

Volkswagen – 3.8 mln units

No. 6.

Chrysler – 2.7 mln units

No. 15.

Mercedez Benz – 600,000 units

.
.
.

Sales Comparison

Sales in automotive industry in 1995

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DaimlerChrysler case | Mergers & Acquisitions

Consolidation in Automotive Industry

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DaimlerChrysler case | Mergers & Acquisitions

Consolidation in Automotive Industry



Smaller than the competitors



Reached a level of saturation in its niches



The competitive position in threat



Smaller than GM and Ford



Competitive pressure from players in Europe and Asia

(rapid growth and economies of scale)


Challenged by shareholders

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DaimlerChrysler case | Mergers & Acquisitions

Q-Star

First joint attempt at cooperation

1994/95 – first meeting (minivan contract in China)

Q-Star company:



Jointly owned



Developed vehicles for emerging markets



Q-Star brand



Fell apart

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DaimlerChrysler case | Mergers & Acquisitions

Project Gamma

Drafting the future company



Very secretive at first



Legal structure: Daimler-Benz AG – tax advantage in Germany



Other delicate issues addressed the same way

1988 – Daimler Chrysler merger

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DaimlerChrysler case | Mergers & Acquisitions

A New Company is Born

Advertising the newly created DaimlerChrysler

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DaimlerChrysler case | Mergers & Acquisitions

Table of Content

Content

1. Introduction
2. History & Key Facts
3. Facing new realities
4. Merger of Equals
5. Post-Merger Integration

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DaimlerChrysler case | Mergers & Acquisitions

The Combined DaimlerChrysler AG

Similar size

-

in profitability

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DaimlerChrysler case | Mergers & Acquisitions

The Combined DaimlerChrysler AG

Similar size

-

in relation to their product portfolios

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DaimlerChrysler case | Mergers & Acquisitions

The Combined DaimlerChrysler AG

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DaimlerChrysler case | Mergers & Acquisitions

Potential for this merger

• synergies in purchasing
• synergies in distribution
• synergies in research
• synergies in development
• market growth

Potential

• 1 year: approx. $ 1.4

billion

• Annual to the next 3-5

years: $ 3 billion

Expected

savings

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DaimlerChrysler case | Mergers & Acquisitions

Different Companies, Different Cultures

Balancing the strengths & weaknesses

Daimler

Benz

Chrysler

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DaimlerChrysler case | Mergers & Acquisitions

The Chairmen‘s Integration Council

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DaimlerChrysler case | Mergers & Acquisitions

Main Goals of the Groups



Merger of Equals: neither „German“ nor „American“ side, don„t look for

„Daimler-Benz“ or „Chrysler“ decision  look only to make the „RIGHT“ decision



Walk-the-talk: DaimlerChrysler top executives will set the tone for the

integration by their example and personal behavior



Maximum autonomy but financial performance targets must be delivered on

time



Listen to the other side at ALL times and watch the tone-setting



Don„t mess around and don„t play games: There will be no place to hide

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DaimlerChrysler case | Mergers & Acquisitions

Table of Content

Content

1. Introduction
2. History & Key Facts
3. Facing new realities
4. Merger of Equals
5. Post-Merger Integration

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DaimlerChrysler case | Mergers & Acquisitions

Post Merger Integration

Developing a post merger integration strategy



In April 1998 Daimler and Chrysler decided for an immediate merger



Decision to forego “honeymoon”

period



Integration was to be completed

within 3 years



Why was this decision taken?

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DaimlerChrysler case | Mergers & Acquisitions

Post Merger Integration

How to tackle the process?

 Higher risk of failure

due to reduced planning

period

 Riding the

„momentum“

 Promote real, structural

changes

Fast

Integration

 Concentration on short-

term savings

 Loss of momentum for

rigorous changes

 No hasty decisions

 Time to identify all relevant

stakeholders

Gradual

Integration

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DaimlerChrysler case | Mergers & Acquisitions

Post Merger Integration

Developing a post merger integration strategy



companies formed a common team to develope PMI strategy



6-month time to consider all aspects

 Concentration on designing a

bluebrint for the entire organization

 Bluebring serves as a basis for all

other integration efforts

 Identification of suitable executives

to “roll out” PMI plan

 Creation of task forces to support

executives in different areas

 Centralized leadership through top

management

 Identification of key integration

areas at the beginning

 Appointing task force leaders to

address major integration issues

 After the formal integration, task

force leaders assume formal
responsibility of that area

 Decentralized leadership through

task force leaders

Approach to PMI

Decentralized

Integration

Centralized

Integration

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DaimlerChrysler case | Mergers & Acquisitions

Post Merger Integration Approach

Centralized approach

Source: IMD International

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DaimlerChrysler case | Mergers & Acquisitions

Post Merger Integration Approach

Decentralized approach

Source: IMD International

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DaimlerChrysler case | Mergers & Acquisitions

Developing a PMI Strategy

Top-Down vs. bottom-up approach

 Requires top-class

management

 overreliance on availability of

high potentials

 Risk of employees bypassing

the proposed hierarchy

 Perception of speeding events

 Clarity of design and

leadership

 Facilitate the creation and

development of leadership

skills

Centralized

Integration

 Risk of losing the overall

Goal in discussion of details

 Less suitable for a strict time

agenda

 Task forces good at re-

solving merger integration

issues

 Helpful in overcoming commun-

ication bottlenecks

Decentralized

Integration

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DaimlerChrysler case | Mergers & Acquisitions

DaimlerChrysler Pyramid

Purpose, Mission, Goals, Belief

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DaimlerChrysler case | Mergers & Acquisitions

First cracks in the pyramid

Developing a post merger integration strategy



Both companies settled for a hybrid strategy, however focusing on

developing a common blueprint first



Official announcement of corporate vision

scheduled for the end of 1998



Around September/October analyst signaled

negative expectations for both companies



Integration benefits were in doubt

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DaimlerChrysler case | Mergers & Acquisitions

Thank you

for your attention!