By Guidance byAbdul Rahim A Dr M S JayamohanS 2, IEM

Mergers Literature review Premerger Daimler Chrysler Premerger Mitsubishi Towards the merger The merger To demerger The contrast The failures Inference

Global vehicle production has more than doubled since1975 , from 33 to

nearly 73 mn in 2007

New markets in China and India has helped to drive the pace of growth

Since the mid 1980s, automobile industry has been shifting from discrete

national industries to a more integrated global industry

On the production side, the dominant trend is towards regional integration

Major firms searched for a presence not just in all major geographic markets,

but in each market segment

Organic growth or Growth by acquisition and merger Mergers & Acquisitions are attractive as they create synergies and economies

of scale

A courtship can often assist in clarifying how much investment might be required to improve a weaker firm as the amount of investment needed might be underestimated and vitiate any post-merger strategy (Gomes et al., 2007)

Of the two key phases, post-merger implementation strategy is the most difficult to operate. No two mergers are alike and so implementation strategies vary accordingly, but in theory should reflect the rationale behind the merger (Mitleton-Kelly, 2004)

It could be argued that mergers and acquisitions have become a key method of firm growth and expansion as it is cheaper and quicker than organic growth. Mergers differ from acquisitions in so far as they are the product of mutual consent between the respective firms and often simply involve an exchange of shares.(Capron 1999)

There are three key stages in a merger process: target identification and selection; negotiation; and integration. (Howell 1970)

Timeline Benz & Company, 1883–1926 Daimler Motoren Gesellschaft AG, 1890–1926 Daimler-Benz AG, 1926–1998(Germany) DaimlerChrysler AG, 1998–2007 Daimler AG, 2007–present

Restructuring Jurgen Schrempp(Daimler) assumed leadership in 1995 Daimler merged with US based Chrysler in 1998 Third largest automaker(4.4 mn/annum)

In auto industry since 1917 (Mitsubishi ship building Co.)

Formed Mitsubishi motors in 1970

Alliance with Chrysler(1971-1993)

Produced 250000 vehicles/annum

Posted a debt of $14.2 bn by mid 1990s

Initiated restructuring

Daimler chrysler

Had aspirations for expansion into Japan and other Asian countries

Envisaged sales of $21 bn

Looked for cooperation in technologies leading to new models and cost

reduction(shared assets)

Mitsubishi

Wanted to survive the recession

Seeking new markets abroad

Daimler Chrysler purchased 34% stake($2.1 bn) of MMC in 2000

Rolf Eckrodt (Daimler) appointed as COO at MMC

Cut material cost(15%) and increased capacity utilization(20%)

Shifted from Engg Dominance to market view point

New manufacturing facility at Kolleda in Germany

The global manufacturing alliance(2 mn power train)

GS platform ("Project Global" by Mitsubishi) was a compact car platform co-

developed by MMC and DCX

Small car models(SMART) in western market

Opened a factory in Illinois, Mitsubishi produced vehicles for itself and for

Chrysler, differentiated mostly by name

Mitsubishi embroiled in accusations of covering up defects in their vehicles

MMC’s CEO was forced to resign

Daimler Chrysler renegotiated the financial terms.

Poor performance of the American wing were creating headaches

Less attention to the East

Three year Recovery plan($2.8 bn) by Schrempp failed

Mitsubishi’s US marketing team failed to properly establish the brand

Profitability remained out of reach for Mitsubishi, and enlarged losses in 2005

were forecast by the company

Daimler Chrysler

….

Mercedes had fallen to lower level in JDP reliability survey

Daimler lost $60 bn in stock market value in six years

Finally Daimler Chrysler extricated from its Asian holdings in November 2005

Production of Smart forfour a JV product ended

Jointly operated engine plant came to Daimler

Daimler-Chrysler split followed

In May 2007, a private equity firm Cerberus Capital Management LP bought 80

.1 percent of Chrysler, for $7.4 billion

Mitsubishi initiated a revitalization plan to return to profitability by 2006

DCX Less innovative in technology Hierarchical: traditional top-down

management Non-programmed decision Bureaucratic Stood for shareholders' satisfaction Luxury brand

MMC Emphasised technological

development Programmed decision-making Participative Secretive culture Low priority to compliance and

customer satisfaction Brand for the mass

The post merger integration strategy never worked

Partnership with an ailing Mitsubishi in 2000

MMC’s management culture is in sharp contrast to Daimler’s

Serious error in judgment in terms of timing

Poor evaluation of MMC before the merger

Focused on growing business than profit maximization

Unequal representation at the executive board

Facing the dual Challenge in the West and East

The ultimate lessons flowing from this case are the dangers in

not having fully thought out post integration strategies, the

importance of timing and the consequences of stretching

resources too thinly in times of economic crisis, especially

when the very existence of the dominant partner could be

threatened.

Begley J. and Donnelly T.(2011) ‘The DaimlerChrysler Mitsubishi merger: a

study in failure’, Int. J. Automotive Technology and Management, Vol. 11, No. 1

Sturgeon T.J., Memedovic O., Biesebroeck J.V., Gereffi G. (2009) ‘Globalisation

of the automotive industry: main features and trends’, Int. J. Technological

Learning, Innovation and Development, Vol. 2, Nos. ½

Dirk Vaubel, Carsten Herbes,(2007) ‘Mergers and acquisitions in Japan’

Mitsubishi Motors (1998–2004) Internet repository, Consolidated annual

financial results, available at http://media.mitsubishimotors.com