1

FAILURE OF MERGERS AND

ACQUISITIONS:
THE CASE OF DAIMLER CHRYSLER

Presented by: Gina Bryan

 Contents

 Overview of Mergers & Acquisitions

 Reasons for Failure of M&As
 Case Study: Daimler Chrysler Merger Failure

 Origins of the Merger

 Reason for and Goals of the Merger

 Why the Merger Failed

 Culture clash
 Organizational Differences
 Recommendations
 Conclusion

 References
 Overview of Mergers & Acquisitions
3

 Economic pressures developed within the

framework of a global marketplace have led to
unprecedented numbers of mergers and
acquisitions over the past decade.
 The number of mergers and acquisitions involving
US companies alone in 2004 reached 376 with an
aggregate total paid of US$22.64 billion. In
comparison, in 2003, the total amount paid was
US$12.92 billion.
 Overview cont’d
4

 However, statistics show that the failure rate of

most mergers and acquisitions lies somewhere
between 40-80%. The facts highlight a worryingly
poor success rate for international mergers and
acquisitions.
 Overview cont’d
5

 Mergers and acquisitions rarely fail because one or both parties did a poor
job of due diligence. The technical or "hard" issues are almost always
addressed with a good deal of intensity . Financial performance, debt,
market share, reputation, and physical plant are some of the hard issues that
usually receive much scrutiny before a merger or acquisition is
consummated. Obviously, the financial management staff play a key role in
these matters.

 Unfortunately, the less technical or "soft" issues rarely receive the same
level of attention before the merger or acquisition decision is made. Yet,
these are the very issues that cause the majority of mergers and acquisitions
to fail. The primary soft issues that prevent most mergers and acquisitions
from being implemented successfully are: Governance of the new
organization; Leadership for the new organization; and Culture
assimilation.
 Reasons for Failure of M&As
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 Many business commentators are now

acknowledging that failure does not have its roots
simply in financial, monetary and legal issues but
in lack of intercultural synergy. Research suggests
that up to 65% of failed mergers and acquisitions
are due to 'people issues', i.e. intercultural
differences causing communication breakdowns
that result in poor productivity.
 Reasons for Failure of M&As
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 Mergers and acquisitions fail for a variety of

reasons:
 First of all, a deal can fail because it was not a good
idea to begin with. Some executives get caught up
in the ego-boosting idea of growth for its own sake.
The business culture and profit motive may
discourage internal managers and external agents
from pointing out potential pitfalls, and the deal
can carry through without any serious challenge.
 Reasons for Failure of M&As
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 Second is the failure to manage the "human" or

"cultural" integration. Businesses are more than
financial reports- they include people- people with
uncertainties, self-interests, personal desires, needs,
etc. A great number of acquisitions proceed with
minimal effort to integrate the people aspects of the
businesses. When this happens, its no wonder they
fail.
 Reasons for Failure of M&As
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A recent example of such intercultural failure has

been that of DaimlerChrysler.
 Both sides in the partnership set out to show that
intercultural hurdles would and could be overcome
in their global merger.  The evidence suggests
however, that DaimlerChrysler underestimated the
influence of culture, and due to culture clash,
struggled to become a unified global organization,
and ultimately failed.
Case Study:
Daimler Chrysler Merger Failure
 Origins of the Merger
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 In 1926 the merger of two German automobile manufactures

Benz & Co. and Daimler Motor company formed Stuttgart-based,
German company Daimler-Benz. Its Mercedes cars were
arguably the best example of German quality and engineering.
 In 1998, Daimler-Benz and U.S. based Chrysler Corporation, two
leading global car manufacturers, agreed to combine their
businesses in what was perceived to be a “merger of equals”.
Jurgen Schrempp, CEO of Daimler-Benz and Robert Eaton,
chairman and CEO of Chrysler Corporation met to discuss the
possible merger.
 The merged entity ranked third in the world in terms of revenues,
market capitalization and earnings, and fifth in the number of unit
sold.
Reason for and Goals of the Merger

 Daimler-Benz luxury vehicles had captured less than 1% of

the American markets.

 Chrysler's primary reason for teaming with Daimler-Benz is

to extend its international reach

 Expected huge savings by combining purchasing and other

operations

 Reduce total research and development costs

Why the Merger Failed

Culture Clash
 To the principals involved in the deal, there was no
clash of cultures. “There was a remarkable meeting of
the minds at the senior management level”.

 Cultural sensitivity workshops were provided for

employees.

 However the larger rifts in business practice and

management sentiment remain unchanged
 Why the Merger Failed
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 Analyst felt that though strategically, the merger made

good business sense, the contrasting cultures and
management styles hindered the realization of synergies.
 Daimler-Benz attempted to run Chrysler USA operations in
the same way as it would run its German operations.
 Daimler-Benz was Characterized by methodical decision-
making, while the US based Chrysler encouraged creativity.
 Chrysler represented American adaptability and valued
efficiency and equal empowerment, while Daimler-Benz
valued a more traditional respect for hierarchy and
centralized decision-making.
15 Organizational Differences
Between Daimler-Benz &
Chrysler
 Daimler AG
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Structure:
Culture:
- High authorities
- Stiff - Strong hierachy
- Little payment disparity
- Formal
- Straight-forward
- Traditional Products:
- Mannerly - High quality
- High price
- Bureaucratic
- Luxurious
- International - Smaller sized cars
 Chrysler Corporation
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 Products: Culture:
- Relaxed
 Attractive
- Informal
 Eye-catching - Flexible
 Very competitive price - Risk Taking
 Comfortable driving - “Cowboy aura“
- Free form
 Moderate speed
discussion

Structure:
- Top down management
- Lean staff
 Why the Merger Failed cont’d
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 James Holden, Chrysler president from September

1999 to November 2000, described what he saw as
the "marrying up, marrying down"
phenomenon. "Mercedes [was] universally
perceived as the fancy, special brand, while
Chrysler, Dodge, Plymouth and Jeep [were] the
poorer, blue collar relations“
 This fueled an undercurrent of tension and the
dislike and distrust ran deep.
 Why the Merger Failed cont’d
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Dishonesty & Mismanagement

 DaimlerChrysler’s CEO Jürgen Schrempp was reported to have said that he

had always intended Chrysler Group to be a mere subsidiary of
DaimlerChrysler. "The Merger of Equals statement was necessary in order to
earn the support of Chrysler's workers and the American public, but it was
never a reality”.

 Also, Jürgen Schrempp and Bob Eaton did not follow a coordinated course
of action in determining Chrysler's fate. During 1998-2001, Chrysler was
neither taken over nor granted equal status. It floated in a no man's land in
between.
 Why the Merger Failed cont’d
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 As a result, Chrysler sat in apathy, waiting for

Daimler's next move - a move which came too late --
when Schrempp installed a German management team
on November 17, 2000. During that interval, Chrysler
bled cash.

 Owing to culture clash and a poorly integrated

management structure, DaimlerChrysler was unable to
accomplish what its forbears took for granted three
years ago: profitable automotive production.
 Recommendations
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Do a Bicultural
Audit:

 This is a diagnosis of cultural relations

between companies prior to a merger and a
determination of the extent to which cultural
clashes are likely to occur.
 Recommendations
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 The cultures of the two organizations must be

assessed to determine whether they are compatible.
If they are not compatible, the two parties can
identify before the merger or acquisition what
needs to be done to fit the two cultures together and
whether it is worth the effort.
 Recommendations
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 Soft issues such as governance, leadership, and

culture must be given the same level of attention
during the due diligence phase of the merger or
acquisition as hard issues. Managers should focus on
the following:
 Governance of the new organization must be
discussed openly and negotiated in the same way that
financial issues are resolved. Before agreeing to the
deal, decide which board of directors and which
directors will survive the transaction.
 Recommendations
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 Leadership for the new organization must also be

determined before the merger or acquisition is completed.
Delaying this issue usually results in power struggles
among executives and management staffs. Addressing the
leadership questions before a merger or acquisition is
difficult because it is almost impossible for the two parties
negotiating the transaction to be objective on this issue.
Self-interest usually prevails over logic or common sense.
This is where the boards of the two parties have to step in
and provide strong leadership. Also, it may be helpful to
bring in an outside consultant to aid in this process.
 Recommendations
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 The norms, beliefs and values of the two

organizations are key cultural issues that must be
examined. For example, there was clearly a
difference in the norms and values of both Daimler
and Chrysler. Both entities had a difficult time
merging because of these issues.
 Recommendations
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 These basic cultural issues must be addressed before the merger or

acquisition is completed. Cultural conflicts are the most common reasons
behind failed mergers and acquisitions.
This is an area where outside assistance can be very
helpful.

 Less technical or soft issues must be identified and addressed as

management plans the merger or acquisition. Failure to do so guarantees
that there will be problems when a merger or acquisition is implemented.
By submerging the soft issues during the planning phase, an organization
runs the greatest risk of all--not only being unsuccessful in implementing
the merger or acquisition, but also weakening itself. This was clearly
evident in the case of Daimler and Chrysler.
 Conclusion
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 There should have been no announcement of “merger of

equals” as this was not true.
 Beware of national differences which can effect the business
culture.
 Observing business cultures better and deciding on leadership
decision rights, from the beginning.
 Hiring outside help (consultants) to aid in the acquisition
process.
 If more attention had been paid to the “soft issues” then real
intensions would have come to light during the discussion phase
and the merger probably would not have happened at all.
 References
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 Finkelstein, S. (2002). The DaimlerChrysler Merger.

Retrieved March. 22, 2010 from
http://mba.tuck.dartmouth.edu/pdf/2002-1-0071.pdf
 Strebel, P. (2002). Focus on Corporate Specifics Not National
Cliché Cross-Border Lessons from the DaimlerChrysler
Merger. Retrieved Mar. 22, 2010 from
http://www01.imd.ch/news/research/perspectives/index.cfm?a
rt=2325
 Gordonhomeland.com, "Changing Organizational Culture:
Unleashing Creative Energy", September 23-25, 2003)
http://users.rcn.com/pgordon/homeland/change_culture.html
accessed March 23, 2010.