Cross-cultural analysis of the failure of DaimlerChrysler's merger.

1. Case: Daimler Chrysler a.k.a. in M&A hell Eleni Miliou 40099 SSE, March 2011

2. Agenda History The merger Outcome Cultural differences analysis Possible solutions Rationale for the chosen alternative Implementation

3. Daimler Benz Europe’s largest industrial company with 300,000 employees Operations in: Directly Managed Businesses (Rail, Automotive Electronics, Diesel engines) Passenger Cars Commercial Vehicles Aerospace Services

4. First patented Benz-motorized vehicle, 1886. The world’s first truck built in 1986 by Benz and Maybach.

5. Chrysler US-based company Founded in 1925 HQ in Detroit Operations in: Cars Minivans Sport-utility vehicles Trucks “ We produce cars and trucks that people will want to buy, will enjoy driving and will want to buy again. ”

6. Walter Chrysler “Chrysler Six” , 1924. Chrysler K310

7. The merger In 1998, the two automotive giants decided to merge They described the $38 billion deal as a “merger of equals” The largest industrial merger ever “ Today we are creating the world’s leading automotive company for the 21st century. ” Jürgen Schrempp, Daimler-Benz Chairman

8. Reasons Daimler is able to enter the US market and add more low-end cars to its assortment Chrysler gets access to Europe Lower costs and higher productivity Exchange of technology Minimum overlap in markets and customers The goal: to create a larger global enterprise to compete in the biggest markets of the world

9. Outcome Falling sales and share price as well as huge losses Synergies not working out as expected DC’s market cap was almost equal to Daimler’s before the merger In 2007 the deal was called off and Chrysler was sold to Cerberus Capital Management Daimler also paid $810 million for debt repayment of DaimlerChrysler

10. Why did the merger fail? Cultural Differences Diametrically opposite management thinking Aplentymismanagement Lack of governance “ The Merger of Equals statement was necessary to earn the support of Chrysler's workers and the American public, but it was never reality. ” Jürgen Schrempp, DaimlerChrysler CEO

12. Authoritarian

13. Bureaucratic

14. Hierarchical

15. Disciplined

16. Formal and structured decision-making

17. “Quality at any cost”

18. Cost-effective

19. Creative

20. Dynamic and informal

21. Pioneer

22. Fast and lean decision-making

24. Possible Solutions HumanDue Diligence Carefully orchestrated and executed management Frequent and effective communication Honesty strategy: ‘reveal your true intentions’ Equality and Fair-Play “- How do you pronounce the name of a German-American automaker? -Daimler. Chrysler is silent.” – DaimlerChrysler Headquarters joke

25. Human Due Diligence “Understanding the culture of an organization and the roles, capabilities, and attitudes of its people.” The first and most crucial step towards a successful merger A proper estimation has to be done before any management techniques can prove successful Pro-active merger management The only solution to identify diametrical, non-compatible cultures and avoid costly mistakes Literature: Harding, D., Rouse, T. (2007). “Human Due Diligence”, HBR.

26. Relevance to DaimlerChrysler Uncover capability gaps, points of friction, and differences in decision making Make the right people decisions (who stays, who goes, who runs the combined business) Decide whether to embrace or kill the deal and determine the monetary value of it “ Human Due Diligence is every bit as important as financial due diligence. Ultimately, every deal succeeds or fails based on the collective efforts of the individuals who make it up.” – David Harding

27. Theoretical Framework Source: Harding, D., Rouse, T. (2007). “Human Due Diligence”, HBR.

28. Implementation Source: Harding, D., Rouse, T. (2007). “Human Due Diligence”, HBR.

29. Possible hindrances If Daimler was clear about its intentions to acquire, Chrysler might have denied the deal If Human Due Diligence had been done, the merger would potentially not have taken place at all Even if Chrysler’s management agrees with the acquisition, staff may resist