Diamler Chrysler Merger Essay Research Paper Two

Diamler Chrysler Merger Essay, Research Paper

Two of the world’s most profitable car companies – having a strong presence in Europe, North America and Asia, with the enormous potential for even more growth around the globe – together will now rank third in the world in revenues and fifth in vehicle unit sales.

Assets being blended include time-honored brands and speed to market, high-technology advances and product innovations in both the North American and European markets. Together, they form a global powerhouse. One of the chairmen for the new merged corporations stated that the Corporation will be, “Number one worldwide in the premium car segment, a world market leader with sport-utility vehicles and minivans, and the world’s largest producer of commercial vehicles.”

But DaimlerChrysler’s reach extends not just to cars and commercial vehicles, but also to aerospace, services, finance, railway systems, automotive electronics and diesel engines. The new company was formed with one clear goal-to become the pre-eminent automotive, transportation and services company in the world. Globalization is a key objective in growing the company. Chrysler Corporation and Daimler-Benz were strong in two leading markets: North America and Western Europe, respectively. As DaimlerChrysler, the company looks to enter and develop new markets in Asia (priority), South America and Eastern Europe.

With its product line, which encompasses automobiles, transportation products and services, and its solid financial position, DaimlerChrysler is in line to take advantage of growth opportunities in new markets and at the same time, strengthen its position in traditional markets. Those new markets, such as Latin America and Asia, may require new products, specifically designed for their needs. With these combined resources, DaimlerChrysler expects to outdistance the competition by more quickly developing market-ready products and services.

DailmerChrysler, at a quick glance

Company Ownership: European, U.S. and other international investors own DaimlerChrysler.

Group Headquarters: Stuttgart, Deutschland, and Auburn Hills, Michigan, USA

Chairmen: Robert J. Eaton and J?rgen E. Schrempp

Market Capitalization: Currently about EUR 80 ($74) billion

Total Revenues: 1998: EUR 131.8 ($112) billion

Investments: 1999-2001: EUR 46 ($38) billion to be invested in the future of DaimlerChrysler

Automotive Sales: 4.5 million units in 1998 (Passenger Cars and Commercial Vehicles)

Employees: 441,500 at the end of 1998

Global Brands: Mercedes-Benz, Chrysler, Plymouth, Jeep?, Dodge, smart, Freightliner, Sterling, Setra,

Airbus, Eurocopter, Ariane, debis, Adtranz, MTU, TEMIC.

Chronology of the inception of the DailmerChrysler.

The DaimlerChrysler merger took approximately one year. The process began when Jurgen Schrempp, President of Mercedes-Benz and Robert Eaton, Chief Executive Officer (CEO) of the Chrysler Corporation, met to discuss the possible merger on January 18, 1998. After receiving approval from a number of groups, the merger was completed on November 12, 1998.

Important Dates

January 12: Mercedes-Benz and Chrysler met to discuss the possible merger.

May 6: Merger agreement was signed in London.

May 7: Merger agreement was announced worldwide.

May 14: Daimler-Benz Supervisory Board agreed to merger.

July 23: European Commission approved the merger.

July 31: Federal Trade Commission approved the merger.

August 6: DaimlerChrysler announced that their shares would trade as “global stock” instead of American Depository Receipts.

September 18: 97% of Chrysler shareholders and 80% of Daimler-Benz shareholders approved the merger.

November 12: DaimlerChrysler merger was completed.

Terms of the Merger.

Certain terms were established concerning the merger of Chrysler and Daimler. These terms affect many different areas of the combined entity.

a. DaimlerChrysler will have headquarters in Germany and Michigan, but the company will be incorporated in Germany with a traditional German structure.

b. The chief executives of DaimlerChrysler will be Jurgen Schrempp, Chairman of Daimler-Benz Management Board, and Robert Eaton, Chairman and Chief Executive officer of Chrysler Corporation. Schrempp and Eaton will work together as co-chairmen for three years, after which Eaton will retire.

c. Shareholders of both companies must exchange their stocks after the merger. Daimler-Benz shareholders receive one share of DaimlerChrysler for each share they currently own, and Chrysler shareholders receive 0.547 of the new company’s shares for every Chrysler share they own.

d. Executives promise not to lay off any employees or close any plants as a result of the merger.

e. The company decided not to use the DaimlerChrysler name on any of its vehicles. The current brands will remain the same:

Mercedes-Benz, Chrysler, Plymouth, Jeep, Dodge, Freightliner, Sterling, and Setra. Vehicles produced in the future will also be made under separate brands.

f. The company expects to incur financial benefits from the merger. Cost savings are estimated to be $1.4 billion after the first year, and $3.5 billion over the next several years. DaimlerChrysler should also have $92 billion in market value and $130 billion in annual revenue.

These terms provide benefits for everyone involved in the merger. The chairmen will not lose their status, employees will not lose their jobs, and shareholders will have investments in a larger company with higher profit margins. All parties will win under the new alliance.

Global Sales Plan, the backbone of the new Corporation

DaimlerChrysler decided on a new Global Sales and Marketing Organization for passenger cars and commercial

vehicles. This operational structure will support sales growth and protect the company’s ten brands. The structure concentrates on three key market regions and targets specific brands to each market region. Brand managers from the Marketing Integration Council will be assigned to each region.

Mr. James Holden, the Executive Vice President for Chrysler Sales and Marketing, will be in charge of worldwide brand management and strategic marketing of Chrysler, Plymouth, Dodge, and Jeep in the North American region.

Mr. Dieter Zetsche, the Executive Vice President of Mercedes-Benz Sales and Marketing, will be in charge of worldwide brand management and strategic marketing of Mercedes-Benz and smart cars in Europe, Asia, Africa, and Australia.

Mr. Kurt Lauck, the Executive Vice President of Commercial Vehicles, will be in charge of global brand management of Commercial Vehicle brands, Freightliner, and Sterling.

Mr. Ted Cunningham, the Executive Vice President of Chrysler International, will be in charge of Regional Sales and Marketing for the Latin American markets.

Associating brands with market regions will differentiate the brands from each other and allow DaimlerChrysler to distribute its products globally. Globalization is essential to growth in this company. The merger gave DaimlerChrysler strong markets in North America and Western Europe, but the goal is to develop markets in Asia, South America, and Eastern Europe, making Asia and Latin America priorities.

Mergers have historically occurred when one company was financially vulnerable. In this case, both companies are strong, reaching record profits. In fact, jobs have been added at both Daimler-Benz and Chrysler this year. Redundancies between the companies are minimal. In the automotive sector, the two companies’ major brands compete in different market segments and in different geographic regions.

Instead of one partner being “rescued” by the merger, the DaimlerChrysler union is a merger of equals, prompted not by necessity but by opportunity. Daimler-Benz, along with possessing the pre-eminent luxury car brand, Mercedes-Benz, is known for its engineering skill and technological advances. Chrysler’s innovation, speed in product development and bold marketing style are world-renowned.

In the automotive sector, there are premium passenger cars under the Mercedes-Benz name as well as cars and trucks under the brands Jeep?, Chrysler, Dodge, Plymouth and SMART. There also are commercial trucks, buses and vans bearing the names Mercedes-Benz, Freightliner, Setra, Sterling and Thomas Built.

In addition to the automotive sector, DailmerChrysler, AG (Griffith) combined many other Mercedes-Benz and Chrysler Corporation assets. The include:

DaimlerChrysler Aerospace (Dasa) is subdivided into the following divisions: Commercial Aircraft, Helicopters, Military Aircraft, Space Infrastructure, Satellites, Defense and Civil Systems, and Aero engines. Dasa is closely involved in the reorientation of the European aerospace industry.

Commercial Aircraft: the Airbus family continues to grow. The Airbus activities are consolidated in the largest sector of Dasa, DaimlerChrysler Aerospace Airbus GmbH. Dasa holds a 37.9% in the European Airbus Consortium, and currently the world’s number two in passenger aircraft.

Helicopters: global leader with a broad range of products. Dasa owns a 40% percent of the Franco-German Eurocopter Group, the world’s largest helicopter maker. Military helicopters, civil helicopters and customer service are the three units within the Eurocopter Group. Aerospacial GmbH’s wide gamut of products, covering some 90 percent of market needs.

Military Aircraft: Focus on Eurofighter. The Military Aircraft division within Dasa performs the development, production and maintenance of various military aircraft.

Space Infrastructure: Success with Ariane Laboratories, space stations and major and minor transport systems for space travel are the core activities of the Space. The Defense and Civil Systems division provide defense electronics, guided missiles and armament systems. These include military reconnaissance, marshalling, information and communication systems as well as radar technology, electronic warfare equipment and air defense systems.

Satellites: The main activities of this division are the development, production and sale of satellite systems, mini-satellites, instruments, sub-systems and components for a host of applications, both commercial and scientific. There is international demand for the skills of DaimlerChrysler Aerospace

Aerospace Engines: MTU Motoren- und Turbinenunion M?nchen GmbH is Germany’s leading engine and turbine manufacturer, plays an active role in numerous engine programs for civil transport, military and freight aircraft as well as helicopters.

Along with globalization, the shift towards a service-based society is the most outstanding characteristic of the structural changes. DaimlerChrysler Services (debis) has been making full use of the expanding service markets. Also incorporated in this scheme is Chrysler Financial, one of world’s largest lenders for automobiles and debis transactions.

Cost/Profit of the new Global Corporation

DaimlerChrysler’s Third-Quarter Operating Profit up 24%, Revenues up 15%, Net Income up 14%

Adjusted earnings per share for third quarter up from EUR 1.36 ($ 1.45) to EUR 1.51 ($ 1.61). Most of this comes from record sales of passenger cars, light trucks and commercial vehicles. Positive outlook due to strong sales and order backlog also allow for a larger profitability of for the future.

Sale of debitel and the Dasa merger continue

Adjusted operating profit year-on-year rose 24% to EUR 2.6 ($ 2.7) billion. Third quarter revenues increased by 15% to EUR 36.2 ($ 38.6) billion, reflecting the company’s stable and profitable growth across most of its automotive, services and aerospace business units.

For the nine months ended September 30, adjusted net income increased 12% to EUR 4.6 ($ 4.9) billion on revenues of EUR 108.5 ($115.5) billion, also up 12%. Earnings per share were EUR 4.62 ($4.92). In the same period, operating profit, adjusted for one-time effects, improved 15% to EUR 7.6 ($ 8.1) billion.

Unadjusted operating profit in the third quarter rose by 60% to EUR 3.3 ($ 3.5) billion, including EUR 886 ($ 943) million from the Debitel sale to Swisscom.

Outlook for fourth quarter and full year 1999

DaimlerChrysler expects continued strong growth in revenues and profits in the fourth quarter. For the year as a whole, revenues are expected to increase to at least EUR 146 ($ 155) billion or by about 11% year-on-year, with profits growing faster than revenues, helped by merger synergies amounting to EUR 1.3 ($ 1.4) billion.

Record sales and profits for passenger car and light truck

In the third quarter 1999, almost all divisions of DaimlerChrysler reported double-digit revenue growth. The most significant profit increase came from the Passenger Cars Mercedes-Benz, SMART division, where operating profit was up 40% to EUR 708 ($ 754) million on revenues of EUR 9.2 ($ 9.8) billion – up 15% – demonstrating very healthy profits from the Mercedes-Benz brand.

Sales of Mercedes-Benz passenger cars continued to set records with 242,700 units in the third quarter, up 7% year-on-year. In the first nine months, 733,300 Mercedes-Benz cars were sold, up 12% over the same period in 1998. Sales of smart totaled 51,300 units in the first nine months.

The Chrysler Passenger Cars and Trucks division reached record revenues of EUR 15.2 ($ 16.1) billion in the third quarter, up 19% year-on-year on unit sales of 722,400, up 7%. In the same period, operating profit increased by 11% to EUR 1.0 ($ 1.1) billion.

In the Commercial Vehicles division, third quarter sales also set a new record and were up 11% to 139,800. Operating profit increased slightly to EUR 303 ($ 322) million.

The Services division also increased its revenues with double-digit growth rates (up 17%). Operating profit was EUR 1.2 ($ 1.2) billion in the third quarter.

Outlook for DailmerChrysler AG

“This is a historic merger that will change the face of the automotive industry,” said J?rgen E. Schrempp. “By combining and 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.”

Along with a growing share of the global transportation market, DaimlerChrysler expects to realize cost savings from combining operations. In 1999, the first year of merged operations, DaimlerChrysler expects to realize benefits of $1.4 billion (EUR 1.6 billion)

These synergies are expected to be realized, in the medium term, by sharing know-how in engineering and manufacturing. DaimlerChrysler management expects annual benefits for the following years to be significantly higher.

Not every area will be consolidated. The safeguarding and nurturing of each brand’s unique image and position will have highest priority. Car design is an example of a function that will certainly remain separate. While teams will work together and share best practices, it is imperative that the company maintains the success and identity of each brand.

DaimlerChrysler’s new stock will be traded around the world as a single class of “registered ordinary shares,” not as the “depository receipts” that German companies with bearer shares up to this point have used when their shares have been listed on the New York Stock Exchange. This action, like the merger itself, represents a historic first: Never before has a German registered company done this. Among other advantages, it represents a big step in making the new stock easy to trade — all around the world.

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