A Marriage Made in Hell

Merger

• Result of an agreement between two companiesto join their operations together.

• Some key issues in mergers follow.

Communication:Grapevine

Power and conflict:

win-win situation.

Culture:

Cultural fit.

Operations: Processes

Studies of M & A integration report 60-75% fail (Source: KPMG, 2008)

Cultural and human resource issues are at least equal in importance to financial factors in making a deal work (The Conference Board, 2001)

E.g., Employees in firms that are acquired or merged report lower overall job satisfaction, lower trust in management, and diminished sense of job security (Gantz-Wiley Research, 2004)

• Founded in the year 1886 by Gottlieb Daimler and Carl Benz.

• 125 years later, in anniversary year 2011, Daimler AG is one ofthe world’s most successful automotive companies.

• With its divisions Mercedes-Benz Cars, DaimlerTrucks, Mercedes-Benz Vans, Daimler Busesand Daimler Financial Services.

• The Daimler Group is one of the biggestproducers of premium cars and the world’sbiggest manufacturer of commercial vehicleswith a global reach.

• Daimler Financial Services provides itscustomers with a full range of automotivefinancial services including financing, leasing,insurance and fleet management.

• With the resources, technology and worldwide distribution network

required to compete on a global scale, the alliance builds on Chrysler

Group‟s culture of innovation, first established by Walter P. Chrysler in

1925, and Fiat‟s complementary technology that dates back to its

founding in 1899.

• Chrysler Group produces Chrysler, Jeep, Dodge, Ram, SRT, Fiat and

Mopar. • Chrysler Group‟s product lineup

features some of the world's most

recognizable vehicles, including the

Chrysler 300, Jeep Wrangler, Dodge

Challenger and Ram 1500.

• Fiat contributes world-class

technology, platforms and

powertrains for small- and medium-

size cars, allowing Chrysler Group to

offer an expanded product line

including environmentally friendly

vehicles.

• On Nov. 12, 1998, Co.completed a businesscombination agreement withChrysler Corporation.

• The $75 billion industrial mergercreates Daimler-Chrysler AG, aninternational transportation andservices company that ranks asthe world's third largestautomobile company based on1997 revenues.

• The enterprise will haveoperational headquarters inStuttgart (Germany) and AuburnHills, MI (USA).

• “The Deal of the Century”Automotive Industries, June1998

The Merger Was Welcomed by Auto Analysts and Consumers

The world’s third largest automanufacturer (GM 1st, Ford 2nd)

Over $154 billion revenue, over $5.6profit.

Mercedes-Benz ranked as the mostvisible luxury brand.

Chrysler’s success in low-end/sub-compact cars and trucks .

Daimler-Benz

• Mercedes is the most popular luxury brand

• A strong dealer network

• Ranked #17 globally

Chrysler Corporation

• Low-end/sub-compact cars and trucks

• Big auto manufacturer in North America

• Mini-vans, Jeep and Dodge trucks

• Ranked #25 globally

• Chrysler's primary reason for teaming withDaimler-Benz is to extend its internationalreach

• The goal of the merger :

– Expected huge savings by combining purchasingand other operations

– Reduce total research and development costs

Marriages Not Always Made in

Heaven

• DaimlerManagement processes ofplanning, organizing andcontrolling. More conservative,efficient and safe.

• ChryslerSetting goals, directing andmonitoring implementation.Known as the risk-takingunderdog

● Cultural challenges

▬ Differences in working styles, leadershipapproach

▬ National culture differences

▬ Behavioural differences

• Daimler

The driving image and

experience associated with

the highest quality available

in the market

• Chrysler

Attractive, eye-catching

design at a very competitive

price

• Daimler

Emphasis on

engineering, design,

quality and after

sales service

• Chrysler

High volume, low cost

manufacturing and

distribution

▬Key members of

management team

leaving

▬Employee moral and

motivation

▬Retention of key staff

▬Consultation with staff

and representative bodies

Others issues● Daimler controlling 57%, in what was perceived to be a „merger of

equals‟.

Though strategically, the merger made good business sense. Butcontrasting cultures and management styles hindered the realizationof the synergies.

● Daimler-Benz attempted to run Chrysler USA operations in the sameway as it would run its German operations.

● Daimler-Benz was characterized by methodical decision-making. Onthe other hand, the US based Chrysler encouraged creativity.

● While Chrysler represented American adaptability and valuedefficiency and equal empowerment Daimler-Benz valued a moretraditional respect for hierarchy and centralized decision-making.

● Three years later DaimlerChrysler's market capitalization stood at$44 billion, roughly equal to the value of Daimler-Benz before themerger13. Chrysler Group's share value has declined by one-thirdrelative to pre-merger values.

Importance of company culture integration.

Importance of a clear and correct target.

Importance of customers and demands.

Importance of the association between theories andpractice

Importance of corporation especially the topexecutives

Importance of knowing the market and the partner

● Compelling business reasons need to drive mergers and acquisitions

● People‟s concerns matter, addressing them is as important as other factors

in M & A activity

● Meaningful involvement in the execution of the change has the most impact

on employee cooperation and commitment

● Continually clarify direction, and communicate extensively, candidly, and on

ongoing basis

● Treat people fairly, and design systems and processes that can flex with the

needs of the organization

● OB practitioners have a clear role in guiding and supporting change

processes and change leaders in M & A activities

These pitfalls of mergers and acquisitions challenge today's leaders to a new

standard of managing change. The strategy is clear - accelerate, concentrate,

adapt, and in the case of international M&As, consider cultural differences. The

human and cultural issues that separate the 17% from the 83% are not about

some abstract values or the "soft stuff", but the concrete reality of productivity,

economic value and sustained growth.

http://oica.net/category/production-statistics/“Organisation Internationale des Constructeurs d’Automobiles” (OICA).Date Source: KPMG