Value creation and challenges of an international transaction The DaimlerChrysler merger ˘ Matej Blasko, Jeffry M. Netter*, Joseph F. Sinkey, Jr.
Terry College of Business, University of Georgia, Athens, GA 30602-6253, USA
Abstract Globalization is a buzzword in international finance and economics. On May 6, 1998, in London, Daimler-Benz of Germany signed a merger agreement with Chrysler Corporation of the United States. Using the DaimlerChrysler merger as a case study, this paper focuses on value creation and analysis of various issues in an international transaction. The market responded very favorably to this merger, and we review the potential sources of value creation in the merger as well as outline the steps undertaken to consummate the merger. We also consider an interesting question: Can a company truly be “global”? Differences in corporate culture, compensation policies, ownership structure, and the legal environment pose significant challenges to all mergers but especially international business combinations. Important postmerger events, such as the Standard & Poor’s decision not to include DaimlerChrysler in the S&P500 Index and the clash of corporate cultures and compensation schemes, have presented major roadblocks to it becoming a truly global company. © 2000 Elsevier Science Inc. All rights reserved. JEL classifications: F23, G34 Keywords: Mergers; Acquisitions; International finance; Business combinations; Value creation; Globalization
1. Introduction The two companies are a perfect fit of two leaders in their respective markets. Both companies have dedicated and skilled workforces and successful products, but in different markets and different parts of the world. By combining and
* Corresponding author. Tel.: 706-542-4450. E-mail address: email@example.com (J.M. Netter) 1057-5219/00/$ – see front matter © 2000 Elsevier Science Inc. All rights reserved. PII: S1057-5219(99)00020-4
˘ M. Blasko et al. / International Review of Financial Analysis 9 (2000) 77–102
Table 1 Industry overview (1998) Largest carmakers General Motors Ford Motor* DaimlerChrysler Volkswagen Toyota Motor Co. Honda Motor Co. Earnings $2.8 billion $6.7 $6.5 $1.3 $4.0 $2.4 billion billion billion billion billion Revenue $140 billion $118 $147 $75 $106 $54 billion billion billion billion billion Car sales 7.5 million 6.8 4.0 4.6 4.5 2.3 million million million million million Cash $16.6 billion $23.0 $25.0 $12.4 $23.0 $3.0 billion billion billion billion billion Rumored merger partners Isuzu, Suzuki, Daewoo Honda, BMW Nissan, Fiat BMW, Fiat Daihatsu, Hino BMW
* In the spring of 1999, Ford Motor acquired Sweden’s Volvo car division for $6.5 billion. Volvo sold 400,000 cars in 1997. DaimlerChrysler called off merger talks with Nissan. Subsequently, Renault of France acquired a stake in Nissan. Source: Naughton (1999), Company reports, Merrill Lynch & Co., Salomon Smith Barney, J.P. Morgan, Wasserstein Perella.
utilizing each other’s strengths, we will have a pre-eminent 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. This is a historic merger that will change the face of the automotive industry. This is much more than a merger, today we are creating the world’s leading automotive company for the 21st century. We are combining the two most innovative car companies in the world. Jurgen Schrempp ¨ Chairman of the Daimler-Benz Management Board On May 7, 1998, Daimler-Benz of Germany announced plans to merge with Chrysler Corporation in the largest international merger in history. Jurgen Schrempp of ¨ Daimler-Benz and Robert Eaton of Chrysler had signed the combination agreement the day before in London. The combined entity is called DaimlerChrysler AG and is incorporated under the jurisdiction of the Federal Republic of...