Dimler & Chrysler
r @THE DAIMLERCHRYSLER MERGER:
SHORT-TERM GAINS, LONG-RUN
WEALTH DESTRUCTION?
Matej Blaˇko, Jeffry M. Netter and Joseph F. Sinkey, Jr. s ABSTRACT
Differences in corporate culture, compensation policies, ownership structure, and the legal environment pose significant challenges to all mergers but especially international business combinations. On 6 May
1998 in London, Daimler-Benz of Germany signed a merger agreement with Chrysler Corporation of the United States. This chapter focuses on value creation and destruction, and the challenges of an international transaction. Given the favorable market response to the merger, we review the potential sources of value creation as well as outline the steps undertaken to consummate the deal. However, important post-merger events, such as the Standard & Poor’s decision not to include
DaimlerChrysler in the S&P500 index and the clash of corporate cultures and compensation schemes, have tarnished the initial luster of the positive market response and present challenging obstacles to the long-term success of the transaction. As of this writing, the evidence suggests that wealth was destroyed rather than created.
Issues in International Corporate Control and Governance, Volume 15, pages 299–329.
Copyright © 2000 by Elsevier Science Inc.
All rights of reproduction in any form reserved.
ISBN: 0-7623-0699-8
299
300
ˇ
MATEJ BLASKO, JEFFRY M. NETTER AND JOSEPH F. SINKEY, JR
1. INTRODUCTION
The two companies are a perfect fit of two leaders in their respective markets. Both companies have dedicated and skilled workforces and successful products, but in different markets and different parts of the world. 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. This is a historic merger that will
SHORT-TERM GAINS, LONG-RUN
WEALTH DESTRUCTION?
Matej Blaˇko, Jeffry M. Netter and Joseph F. Sinkey, Jr. s ABSTRACT
Differences in corporate culture, compensation policies, ownership structure, and the legal environment pose significant challenges to all mergers but especially international business combinations. On 6 May
1998 in London, Daimler-Benz of Germany signed a merger agreement with Chrysler Corporation of the United States. This chapter focuses on value creation and destruction, and the challenges of an international transaction. Given the favorable market response to the merger, we review the potential sources of value creation as well as outline the steps undertaken to consummate the deal. However, important post-merger events, such as the Standard & Poor’s decision not to include
DaimlerChrysler in the S&P500 index and the clash of corporate cultures and compensation schemes, have tarnished the initial luster of the positive market response and present challenging obstacles to the long-term success of the transaction. As of this writing, the evidence suggests that wealth was destroyed rather than created.
Issues in International Corporate Control and Governance, Volume 15, pages 299–329.
Copyright © 2000 by Elsevier Science Inc.
All rights of reproduction in any form reserved.
ISBN: 0-7623-0699-8
299
300
ˇ
MATEJ BLASKO, JEFFRY M. NETTER AND JOSEPH F. SINKEY, JR
1. INTRODUCTION
The two companies are a perfect fit of two leaders in their respective markets. Both companies have dedicated and skilled workforces and successful products, but in different markets and different parts of the world. 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. This is a historic merger that will
References: Baums, T. (1999). Corporate contracting around defective regulations: The Daimler-Chrysler case Blitzer, D. M. (1998). Chairman of the S&P500 Index Committee as quoted by Business Wire Inc. report (Oct. 1, 1998). Lexis-Nexis. Bruner, R. F. (1999). An analysis of value destruction and recovery in the alliance and proposed merger of Volvo and Renault Bruner, R., Christmann, P., Spekman, R., Kannry, B., Davies, M., & Daimler-Benz, A.G. (1999). Garten, J. E. (1998). Economic Viewpoint: Daimler has to steer the Chrysler merger. Business Week, (July 10), p DaimlerChrysler (1998a). Merger Prospectus. Chrysler Corporation Proxy Statement (For a Special Meeting of its Stockholders to be held on September 18, 1998) and DaimlerChrysler AG Prospectus; SEC filing – Form F–4 – Registration statement under the securities act of 1993. As filed with the Securities and Exchange Commission on August 6, 1998. DaimlerChrysler (1998b). Annual report, as filed with the SEC on March 31, 1999, Form 20-F. DaimlerChrysler (1999). Annual report, as filed with the SEC on February 28, 2000, Form 20-F. Daimler-Benz (1997) and (1996). Annual reports. Fama, Eugene, (1998). Market Efficiency, long-term returns and behavioral finance. Journal of Financial Economics, 49, 283–306. Grinblatt, M., & Titman, S. (1998). Financial Market and Corporate Strategy. Irwin/McGraw Hill: Boston. Hooke, J. (1997). M&A: A practical guide to doing the deal. John Wiley & Sons, Inc. Kaplan, S., Mitchell, M., & Wruck, K. (1997). A Clinical Exploration of Value Creation and Destruction in Acquisitions: Organizational Design, Incentives, and Internal Capital Kaplan, S. (1989). Campeau’s Acquisition of Federated: Value Created or Value Destroyed? Journal of Financial Economics, 25, 191–212. Kaplan, S. (1994). Campeau’s Acquisition of Federated: Post-Bankruptcy Results. Journal of Financial Economics, 35, 123–136. Karolyi, G. A. (1999). DaimlerChrysler AG, The First Truly Global Share. Fisher College of Business, Ohio State University Loughran, T., & Vijh, A. M. (1997). Do long-term shareholders benefit from corporate acquisitions? Journal of Finance, 52(5), 1765–1790. Loughran, T., & Ritter, J. R. (1995). The New Issues Puzzle. Journal of Finance, 50(1), 23–51. Lyon, J. D., Barber, B. M., & Tsai, C-H. (1999). Improved methods for tests of long-run abnormal stock returns Lys, L., & Vincent, L. (1995). An analysis of value destruction in AT&T’s acquisition of NCR. Maquieira, C. P., Megginson, W. L., & Nail, L. (1998). Wealth creation versus wealth redistributions in pure stock-for-stock mergers, Journal of Financial Economics, 48, Miller, K. L. (1998a). The Auto Baron. Business Week, (November 16), 82–90. Miller, K. L. (1998b). Deutsche Bank: Big noise, little impact. Business Week, (International edition, November 16) Myers, S. C. (1976). Introduction: A Framework for Analyzing Mergers. In: S. C. Myers (Ed.), Modern Developments in Financial Management (pp Naughton, K. (1999). Industry Outlook 1999: Manufacturing – Autos. Business Week, (January 11), 112–113. Naughton, K. (1999). The Global Six. Business Week, (January 25), 68–72. NYSE Daily Stock Price Record (1997) and (1998). New York Stock Exchange. Standard & Poor’s. Orr, D. (1999). Compensation policies: Damn Yankees. Forbes, (May 17), 206–207. Roll, R. (1986). The Hubris Hypothesis of Corporate Takeovers. Journal of Business, 59, 197–216. Reed, S. F., & Lajoux, A. R. (1995). The Art of M&A A Merger and Acquisition Buyout Guide (2nd ed.) Ruback, R. S. (1982). The Effect of Discretionary Price Control Decisions on Equity Values. Yates, B. (1996). The Critical Path: Inventing an Automobile and Reinventing a Corporation.