By

Abdul Rahim A
S 2, IEM

Guidance by
Dr M S Jayamohan

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, 18831926

Daimler Motoren Gesellschaft AG, 18901926

Daimler-Benz AG, 19261998(Germany)

DaimlerChrysler AG, 19982007

Daimler AG, 2007present

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

MMCs 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

Mitsubishis 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 topdown 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

MMCs management culture is in sharp contrast to Daimlers

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.

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

Mitsubishi Motors (19982004) Internet repository, Consolidated annual

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