CHRYSLER CORPORATION: NEGOTIATIONS BETWEEN DAIMLER AND CHRYSLER
In January 1998, Jürgen Schrempp, CEO of Daimler-Benz A.G., approached Chrysler Corporation’s chair and chief executive officer (CEO), Robert Eaton, about a possible merger, acquisition, or deep strategic alliance between their two firms. As Schrempp argued: The two companies are a perfect fit of two leaders in their respective markets. Both companies have dedicated and skilled work forces and successful products, but in different markets and different parts of the world. By combining and utilizing each other’s strengths, we will have a preeminent strategic position in the global marketplace for the benefit of our customers. We will be able to exploit new markets, and we will improve return and value for our shareholders.1 Schrempp recounted later: I just presented the case, and I was out again. The meeting lasted about 17 minutes. I don’t want to create the impression that he was surprised. When the meeting was over, I said, “If you think I’m naïve, this is nonsense I’m talking, just tell me.” He smiled and said, “Just give me a chance. We have done some evaluation as well, and I will phone you in the next two weeks.” I think he phoned me in a week or so.2 Independently, Eaton had concluded that some type of combination of Chrysler with another major automobile firm was needed. The firm was currently financially healthy, but industry overcapacity and huge prospective investment outlays called for an even larger type of global competitor. Before seeing Schrempp, Eaton had polled investment bankers for their ideas about a major automotive merger, and had spoken with executives from BMW on this topic.
Press release, Daimler-Benz A.G., 6 May 1998. “Gentlemen, Start Your Engines,” Fortune (8 June 1998): 140.
This case was prepared from public information by Robert F. Bruner, Petra Christmann, and Robert Spekman and by Assistants Brian Kannry and Melinda Davis. It is intended to be used in a negotiation exercise with “Daimler-Benz A.G.: Negotiations between Daimler and Chrysler” (UVA-F-1241). The financial support of the Darden Partnership Program and the Darden School Foundation is gratefully acknowledged. Copyright © 1998 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to firstname.lastname@example.org. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 12/01.
Eaton replied positively to Schrempp’s idea of an industrial combination. Now the task of forging the details of the agreement to combine lay ahead. Robert Eaton appointed a small task force of business executives and lawyers to represent Chrysler in the detailed negotiations. Eaton challenged this team on several counts: exploit the benefits of combination; preserve and strengthen the Chrysler brands; minimize the adverse effects of combination on employees and executives; and maximize shareholders’ value. Eaton reflected on the variety of terms the Chrysler team might seek and immediately convened a meeting to begin planning the team’s negotiation strategy. Eaton said, My number-one criterion is that [any deal] has got to be a long-term upside with no negative short-term impact. It’s got to be good for the shareholders. That’s my—and my board’s—fiduciary responsibility.3 Chrysler Corporation In 1920, Walter P. Chrysler, a multimillionaire and the president of Buick at age 45, stormed out of the head office of General Motors with the idea of starting his own car company. The Chrysler Corporation was officially launched in 1924 with the introduction of the Chrysler Six and rapidly grew to become the third largest automaker in America. While Chrysler managed to...