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Case: Daimler Chrysler a.k.a. in M&A hell Eleni Miliou 40099 SSE, March 2011

Daimler chrysler ccm exam_40099

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Page 1: Daimler chrysler ccm exam_40099

Case: Daimler Chrysler

a.k.a. in M&A hellEleni Miliou

40099

SSE, March 2011

Page 2: Daimler chrysler ccm exam_40099

Agenda

① History ② The merger③ Outcome ④ Cultural differences

analysis⑤ Possible solutions⑥ Rationale for the chosen

alternative⑦ Implementation

Page 3: Daimler chrysler ccm exam_40099

Daimler Benz

Europe’s largest industrial company with 300,000 employees Operations in:

Directly Managed Businesses (Rail, Automotive Electronics, Diesel engines) Passenger Cars Commercial Vehicles Aerospace Services

Page 4: Daimler chrysler ccm exam_40099

The world’s first truck built in 1986 by Benz and Maybach.

First patented Benz-motorized vehicle, 1886.

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Chrysler

US-based company Founded in 1925 HQ in Detroit 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. ”

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“Chrysler Six” , 1924.

Walter Chrysler

Chrysler K310

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The merger

In 1998, the two automotive giants decided to merge They described the $38 billion deal as a “merger of equals” The largest industrial merger ever

“ Today we are creating the world’s leading

automotive company for the 21st century. ” Jürgen Schrempp, Daimler-Benz Chairman

Page 8: Daimler chrysler ccm exam_40099

Reasons

Daimler is able to enter the US market and add more low-end cars to its assortment Chrysler gets access to Europe Lower costs and higher productivity Exchange of technology Minimum overlap in markets and customers The goal: to create a larger global enterprise to compete in the biggest markets of the world

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Outcome

Falling sales and share price as well as huge losses Synergies not working out as expected DC’s market cap was almost equal to Daimler’s before the merger In 2007 the deal was called off and Chrysler was sold to Cerberus Capital Management Daimler also paid $810 million for debt repayment of DaimlerChrysler

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Why did the merger fail?

Cultural Differences Diametrically opposite management thinking Aplenty mismanagement Lack of governance “ The Merger of Equals

statement was necessary to earn the support of Chrysler's workers and the American public, but it was never reality.

” Jürgen Schrempp, DaimlerChrysler CEO

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Contrasting Values

Daimler Chrysler

• Quality-focus• Authoritarian• Bureaucratic• Hierarchical• Disciplined • Formal and structured

decision-making• “Quality at any cost”

• Cost-effective• Creative• Dynamic and informal• Pioneer • Fast and lean decision-

making• “Bold and risk-taking

underdog”

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Inability to Manage Cross-Culturally

Strong cultures and language barriers (US vs. DE)

Both companies had different culture and values and neither of them was willing to change

Culture clash eroded the anticipated synergy savings

Incompatible brand portfolios

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Possible Solutions

Human Due Diligence Carefully orchestrated and executed management Frequent and effective communication Honesty strategy: ‘reveal your true intentions’ Equality and Fair-Play

“- How do you pronounce the name of a German-American automaker?

-Daimler. Chrysler is silent.” – DaimlerChrysler Headquarters joke

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Human Due Diligence“Understanding the culture of an organization and the roles, capabilities, and attitudes of its people.”

The first and most crucial step towards a successful merger A proper estimation has to be done before any management techniques can prove successful Pro-active merger management The only solution to identify diametrical, non-compatible cultures and avoid costly mistakes

Literature: Harding, D., Rouse, T. (2007). “Human Due Diligence”, HBR.

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Relevance to DaimlerChrysler

“ Human Due Diligence is every bit as important as financial due diligence. Ultimately, every deal succeeds or fails based on the collective efforts of the

individuals who make it up.” – David Harding

Uncover capability gaps, points of friction, and differences in decision making Make the right people decisions (who stays, who goes, who runs the combined business) Decide whether to embrace or kill the deal and determine the monetary value of it

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Theoretical Framework

What is the purpose of the

deal?

Who is the cultural

acquirer?

What kind of organization do

we want?

How will the cultures mesh?

Whom do we want to retain?

What will employees

think about the deal?

Source: Harding, D., Rouse, T. (2007). “Human Due Diligence”, HBR.

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ImplementationGoal: strengthen

existing business, gain more customers, enter

new markets and achieve economies of

scale

In line with the goal, cultural acquirer should

be the financial acquirer: Daimler

Intended organization:Globally-active multi-

national conglomerate

Daimler’s culture should prevail, as the cultural acquirer and earlier ‘conglomerate’

Retain Daimler executives

Chrysler employees will probably be

disappointed and angry

Source: Harding, D., Rouse, T. (2007). “Human Due Diligence”, HBR.

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Possible hindrances

If Daimler was clear about its intentions to acquire, Chrysler might have denied the deal If Human Due Diligence had been done, the merger would potentially not have taken place at all Even if Chrysler’s management agrees with the acquisition, staff may resist

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Conclusion

Human Due Diligence is the most appropriate first step to solve the problems of the DaimlerChrysler case Following, a combination of all suggested alternatives would be ideal Lessons learnt for all M&A candidates: • do your homework • never-ever underestimate the importance

of people

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Thank you for your attention!