DaimlerChrysler — Flagrant Misrepresentation of a Merger
The 1998 merger between Daimler and Chrysler was a spectacular fiasco that left both companies bleeding. At that time, both companies had separately undergone significant turnarounds, and it was believed that the merger would produce an international powerhouse in the automotive industry.
One of the key factors is that the term "merger" is often misleading - it connotes a cooperative effort between two companies of equal strength and standing. However, one player is always stronger than the other, and gains greater control, such that the result of a merger more closely resembles an outright acquisition. In this instance, Daimler easily overpowered Chrysler in the "merger" between the firms.
Some of the blame for this is hung on Daimler:
- Daimler had formal control, and treated Chrysler as an acquired firm, plundering its assets, restructuring the organization, and subordinating its corporate culture, such that many of the people who had made the company successful were disenchanted, alienated, or outright dismissed.
- Daimler's approach to business operations seemed to be cannibalistic, treating Chrysler as a collection of spare parts to augment its own organizational structure
Chrysler also bears some of the blame:
- The company was widely seen as complacent in the wake of its turnaround success and had become inattentive to waste and mismanagement within its organization
- The turnaround of the firm is as often ascribed to "good luck" rather than inspired management: the company stuck to the product lines (large sedans, pickup trucks, and SUVs) that it dragged it down during the late 1970's gas crisis, whereas other companies abandoned those lines, and when the crisis ended, it had a powerful position in the market, just by virtue of doing business as usual and ignoring environmental factors.
- Iacocca's entrepreneurial culture led to poor communication and coordination. The operations of the company, its procedures and practices, were a wreck that invited a sever overhaul.
After a few years, the merger largely collapsed: Daimler divested itself from Chrysler, and both companies went about repairing the damage that was done. Some ties still remain: many of Chrysler's models use Diamler components, but the relationship is more clearly along the lines of supplier and customer rather than collaborations.
Lessons Learned
There are charges that Daimler's overtures toward Chrysler were misleading, in that it clearly misrepresented its intentions toward Chrysler to woo both management and stockholder support for the merger. Law and government agencies protect consumers against misrepresentation, but the same laws do not apply to the overtures made among companies in a merger transaction.
The blame can also be leveled at Chrysler for not taking a closer look at the potential downside: failure to gather details, failure to consider the negative consequences, and failure ultimately to get sufficient documentation such that the verbal promises and overtures became enforceable conditions of the merger,
On a more practical level, the lesson is that mergers are not a panacea. During the same decade, there have been numerous corporate mergers that have ended in disaster - and while there's money to be made by dealmakers, investment bankers, and speculators, it's a short-term gain that leads to long-term damage. After this and other disastrous mergers, the corporate trend has shifted to "partnerships" in which companies maintained their sovereignty, but commit resources to a common venture from which each can easily withdraw, and the terms of the partnership are documented in much greater detail.