Mergers and Acquisitions: Daimler AG & Chrysler Group


Mergers and acquisitions are strategies adopted by corporations to improve the financial and management status through buying, selling or combination of two or more companies. A merger is a business venture whereby two or more companies with almost equal capacities join together to create a new venture. The companies combine their resources to expand their capital base as well as improve the management and the entire operations of the company. The companies cease to exist and a new one is established with a new name, management, capital and all other aspects (Gaughan, 1999).

An acquisition is a business strategy whereby one company buys another. The company bought is totally absorbed by the other and the buying company continues to exist as before. The process of acquisition may be friendly or hostile. Friendly acquisitions occur when the two companies are willing. A hostile acquisition is when one company is not willing. Acquisitions can be formed between a small company being purchased by a larger company or the reverse (Ireland, Harrison & Hitt, 2001).

The process of creating mergers and acquisitions should be properly organized to avoid the failure of the new business. All the aspects of the new business should be well prepared to ensure that all the stakeholders are satisfied. Most mergers and acquisitions fail due to poor strategy planning. The financial, managerial and legal aspects should be fulfilled to ensure that the new company has a firm foundation before it starts its activities. In addition, the corporate culture of the employees and all other stakeholders should be properly integrated to ensure no conflict that may cause failure of the new enterprise in the future (Gaughan, 1999).

Daimler AG is a company that manufactures automobiles, motor vehicles and engines. It was founded in Germany in 1883. By then, it was called Daimler Motoren Geselleschaft. The company applied for a merger with Benz & Cie in 1924 and in 1926, both companies merged. A new company, Daimler-Benz AG, was formed and the brand name of Mercedes-Benz was put on all its products. Later on in 1998, the company merged with Chrysler Corporation. The company name changed to DaimlerChrysler AG. The merger did not last long and in 2007, Chrysler group was acquired by Cerberus Capital Management. DaimlerChrysler AG changed its name to Daimler AG (Thornton & Meyer-Larsen, 2000).

Chrysler Group LLC is a company that manufactures automobiles with headquarters in Detroit, Michigan. It was founded in 1925 by Walter Chrysler. The company merged with Daimler-Benz AG in 1998 up to 2007. Chrysler Group was sold to Cerberus Capital management in 2007. In 2009, Chrysler LLC planned to partner with Fiat of Italy after filing for Chapter 11 bankruptcy protection (Turnock & Cobbs, 2003).

Rationale for the merger

The merger between Daimler and Chrysler happened on May, 7th 1998. The CEOs of the two companies suggested that they required strong partnership to enable them survive in the market of cars. The two companies were equally large and they needed to build a multi-billion company that would dominate the market and compete successfully. However, many people suggested that the two companies could do without the merger (Gaughan, 1999).

Chrysler Group had experienced unstable financial state for several decades and required support from Daimler. Chrysler had encountered hostile takeover attempts. Kirk Kirkorian, the largest shareholder, had attempted to take control of the company. In collaboration with Lee Lacocca, the former chairman of the board, Kirk attempted to takeover the company but the board refused. The company survived the challenge and this indicated that a great change was required about the operations of the company. The company required financial stability to maintain its status and overcome the challenges it encountered (Thornton & Meyer-Larsen, 2000).

Chrysler operated in the US market and required to expand its boundaries abroad. The changes that the company aspired would be achieved through increase in the market space. A large investment was required to access the international market. This necessitated the creation of a merger with a strong company that operated in a diversified geographical market. The market for passenger cars had declined in the US market and more market segments abroad would buy the product. Since the company had no dealers or plants abroad, it planned to merge with Daimler AG so as to access the international market for its products (Geisst, 2004).

Daimler-Benz had a strong financial foundation and had 21 businesses in different countries (Berghahn, 1996). The biggest percent of its profits was from the Mercedes Benz. The company required diversification in order to increase its security in the market. The market for luxury cars was at its climax since there was no growth recorded for a long duration of time. The automotive market was wide and a variety of products were competing. The Mercedes-Benz was the only product that the company relied on. Daimler required diversifying its product range. The merger with Chrysler was aimed at increasing the variety of products the company sold (Turnock & Cobbs, 2003).

The business approach of the two companies did not overlap each other in terms of management and product lines. Chrysler was based in the US and the Americans have innovative approach to innovative production as well as low cost efficiency in their business activities. Daimler was a German company and the Germans have the taste of quality and attention to details. These two companies would establish a strong partnership since they had no conflicting characteristics (Geisst, 2004).

The merger was welcomed since the two companies were very successful. The main intention was not only to increase savings but also to increase the product range as well as expand the market to the international scene. Many people were of the idea that the merger was the best due to the diversification in ideologies and approach to business. The two companies aspired to expand globally and compete in the international market (Fairfield-Sonn, 2001).

The failures of the merger and acquisition of Daimler-Chrysler

The failure of the merger was caused by many challenges that erupted after the companies had already merged. Daimler has diversified its business in different geographical regions. Chrysler had a centrally located business operation. The two companies were different in terms of geographical, tradition and cultural aspects (O’Sullivan, 2001).

The corporate culture of Daimler and Chrysler was totally different (Oden, 1997). The companies were not compatible with each other in terms of corporate culture. For example, Daimler AG had a corporate culture of allowing the workers to have beer breaks. This culture was not acceptable by Chrysler since they perceived that it could cause accidents and other illegal impacts. After the DaimlerChrysler merger was established, this issue brought conflicts leading to poor cooperation between the managers of the two companies. This resulted to the failure of the merger (O’Sullivan, 2001).

Chrysler and Daimler were highly respected in their home countries and they protected their corporate identity. Chrysler was an American company and it operated on a very rough course. It almost became bankrupt severally. However, it managed to grow up into a large corporation despite the hard experiences it encountered. Daimler AG was a German company which was famous in manufacturing luxurious cars (O’Sullivan, 2001).

Chrysler used the strategy of being innovative to develop business ideas and venture into new markets. Daimler was a complete opposite of this and encouraged formality and hierarchy. At Daimler, decision making is formalized and the employees wear formal clothes at work. During the DaimlerChrysler merger, Chrysler promoted informal communications and casual clothing standards. This created conflict between the two companies due to different cultural understanding (Luo, Jackson & Schuler, 2003).

The relationships within the organizations brought conflicts during the merger. The Germans were very formal and could not disclose their personal matters within the organization. The Americans were conservative and allowed freedom in relationship development (Berghahn, 1996).

Cross border cultural differences were also evident in the manner in which the employees operated as well as the differences in their lifestyles. The Americans demanded high salaries and were not willing to relocate to Germany. The Germans liked expensive budgets and were willing to move to America. The managers from the two countries had conflicts about relocating to either country. The Americans were stubborn whereas the Germans were willing to change their geographical workplace (Berghahn, 1996).

Management style of the Germans advocated for long meetings with long discussions and reports. The Americans were of the opinion that creativity is the central idea in management and they accepted short meetings with few reports. Chrysler Group was founded on the belief that invention and innovation was the best approach to success. This was the reverse of Daimler which accepted formal set up of activities with all the strategies being conducted in a formal manner to retain a good image about the company (Luo, Jackson & Schuler, 2003).

The public relations of the merger failed from the beginning causing conflicts between the two companies. The release of the information to the newsmen about the merger created conflicts. The plan was that the news would be released at a time that would be appropriate for the European media. This time was 2 a.m. in the U.S. Conflicts continued from the initial period until the merger aborted (Herndon & Galpin, 2000).

The Germans dominated almost all important activities of the company. For example, the public relations workers had conflicts over press kits. News about the merger were released in German language and later translated into English. The news was released in the morning, a time that favored the Germans. The German managers imposed a Daimler way of doing things within the organization. The Americans were shunned away from the activities of the organization (Smith, 1994).

The cultural differences raised a lot of clashes in terms of communication, management, lifestyle and the shareholder interest in the merger. Americans had the suggestion that the Germans were overtaking them in the management of the organization. On the other hand, the Germans felt that the American managers were receiving huge salaries. German shareholders feared that Chrysler would tarnish the good image of Mercedes brand (Luo, Jackson & Schuler, 2003).

The conflicts were caused by communication breakdown. The two companies had not laid down proper strategies to solve the problems that would emanate from the cultural differences between them and their stakeholders. The culture of the Americans and the Germans are contrary to each other and mixing the two would require a good plan to avoid conflicts. Conflicts emanated from the managerial aspects as well as the culture of the two communities (Malekzadeh & Nahavandi, 1993).

Theories, concepts and processes about mergers

The formation of a merger should consider the interests of both internal as well as the external stakeholders of the organizations forming the merger. Communication is very important during the formation of a merger so as to learn the cultural differences and the views of each stakeholder involved in the exercise. The post-merger relationship of the various stakeholders should be well maintained to ensure no conflicts arise between the parties (Herndon & Galpin, 2000).

Most companies planning mergers have done every detail but have forgotten the most essential aspect of compatibility. During the formation of a merger, managers concentrate on issues such as economies of scale, synergy in operations, marketing jointly, increased business opportunities among other advantages of mergers. They forget the issue of cultural differences and how to tackle it. The culture of the organization is a complicated factor which takes time to change. It contributes a lot to the success of activities within the organization. Culture unites people within an organization and helps solve some problems that arise during the normal business operations (Scherer & Ravenscraft, 1987).

International mergers require proper understanding of the culture of the different nations in which the companies are located. Cultural issues should be well estimated in conjunction with the organizational and structural issues. Mergers that involve companies from different cultures should understand the cultural differences before they combine the business. This issue may bring a lot of downfall later if it is not properly managed (Ireland, Harrison & Hitt, 2001).

The stakeholders who may be affected by the creation of a merger are the employees, suppliers, customers, shareholders, legal partners. These parties seek representation in the activities of the merger and have a lot of influence on the management and control of the activities carried out by the merger. Each company forming the merger should consider the interests of all its stakeholders before setting up the merger. The new company formed should create a structure to manage the culture of the different stakeholders from the partners forming it (Herndon & Galpin, 2000).

Communication of all the necessary information about the merger should be done to prepare the stakeholders adequately enough. There are four phases of communication during the process of forming a merger (Mueller, 2003).

The first step involves the announcing the merger. All the stakeholders should learn about the merger from the company itself. It is not a good practice for the stakeholders to learn about developments that affect them from the media. The company should create an impression such that people will be pleased by the decision. This prepares them psychologically and shows concern about the welfare of the different partners in the business (Scherer & Ravenscraft, 1987).

The second stage involves the activities in between announcing the merger and approval by the relevant authorities. All the questions about the impacts of the merger should be answered to avoid suspense. The effects of the merger on the individual company should be discussed so as to solve any impending problem that may occur afterwards. Post-merger effects should be well discussed to avoid conflict of interest that may occur after the formation of the new company. All parties ought to be honest to each other and give the best opinion so as to avoid breakdown in communications afterwards. The consequences of the merger need be well analyzed by all partners and a proper strategy laid down to give the best method of dealing with issues that may arise in the course of operation. Transparency and honesty are the most important aspects during this phase (Mueller, 2003).

The third stage occurs when the deal is closed. Rumors are spread about the loss of jobs among the employees after the implementation of the policy. These rumors have a great impact on the morale of the employees. The employees expect the worst to happen after the merger and they exaggerate the situation to uncontrollable state. The management should provide the employees with factual information about the decisions made. This prepares the employees psychologically and helps prevent chaos during the cross over period (Ireland, Harrison & Hitt, 2001).

The last phase occurs when the changes created by the merger are completed. All the stakeholders are concerned whether the merger has achieved the promises it issued or not. The merger should give the benefits it has created to the partners. This information is vital since it maintains a positive image about the merger. It also gives a feedback about the success of the merger. The evaluation of the entire process is done to know how successful the process of forming the merger is so as to solve future problems that may occur. This phase also helps formulate the best procedures in future when a similar situation needs to be addressed (Scherer & Ravenscraft, 1987).

These phases should be well managed to ensure the stakeholders in the companies forming the merger change their cultures gradually until they become adapted to the new culture. Corporate communication should be maintained during and after the formation of the merger so as to ensure all the partners get used to the culture of the new organization. Challenges that are rising up should be discussed by the members to ensure conflicts are solved amicably. Culture requires time to change. The process of changing the culture should be taken slowly to avoid conflicts. People require to be trained about adopting the new culture so as to ensure they become used to the new system of operations (Mueller, 2003).

The reflective similarities/differences in the implementation of strategy policy in private and public sector

Management practices: Public and private sector management have goals to be attained which are predefined during the establishment of the organization. All employees have duties to attend to and they are guided by the corporate mission, vision and core values in the attendance of duties. The organizational structure exists in both public and private sector. This structure defines the flow of authority as well as the accountability of each person (Joyce, 2000).

Public sectors are managed by employees nominated by the government. The government controls all the activities of the organization. The managers of public sector are responsible to the government and are under the control of a certain department. The private sector employs its own managers to manage the activities. The managers are responsible to the shareholders. Shareholders elect the directors to manage the activities of the company (Gaster et al 2003).

Employee motivation: The aim of employee motivation in public and private sector is to improve performance and ensure that employees are satisfied at their place of work. The goals of employee motivation are to reduce employee turnover and improve their productivity. All employees are protected by the state. There are legal issues pertaining the conduct of both public and privat3e sector concerning their conduct towards the employees (Howard, 2001).

Public sector employees are under the control of the state. The department of public service deals with the issues related to the employees from different departments. Private sector deals with the issues concerning its employees at organizational level. Employees are responsible to the organization that has employed them. All government departments are conducted in a similar manner and employees are aware of their rights and privileges. The private sector conducts activities using internal regulations which must abide by the guidelines given by the state (Berman & Kearney, 1999).

Purpose/goal: The goal of any organization is to satisfy the needs of its customers. Both private and public sectors aim at increasing satisfaction of all stakeholders. All organizations are founded with the intention of fulfilling social needs within the state. This is the mandate of every organization since people are the main consumers of products and services offered by the private and public sector (Gaster et al 2003).

The main goal of public sector is to promote the welfare of the citizens. The public sector has no intentions to make profits. Private sector is profit oriented and the main objective is to maximize profits and reduce losses (Berman & Kearney, 1999).

Accountability: Every organization has its limits and accountability procedures. No organization operates on a system without regulations. Accountability is put in place to ensure all parties are responsible to the organization (Howard, 2001).

Private sector is accountable to the shareholders. Shareholders are the investors to the organization and they give life to the company. The public sector is accountable to the taxpayers who contribute to the national income through tax. The taxpayers expect services and products in return to the tax paid (Joyce, 2000).

Complexity: All organizations have structures which ensure operations are done appropriately. Both private and public sectors have structures which are complex depending on the size. The network of activities determines how complicated the structure is (Gaster et al 2003).

Private organizations operate at a small scale or large scale. Small organizations have no complex structures whereas large organizations have complex structures to deal with the operations of different people from different regions. The public sector is complex since it operates at the national and international level. The number of participants in the public sector is large and requires a complicated system to control all the activities (Howard, 2001).

Stakeholders: The stakeholders in both private and public sector are the people who are affected by the activities of the company. The activities of both private and public sectors have an impact to the people concerned (Berman & Kearney, 1999).

The stakeholders in the private sector are the customers, suppliers, employees, investors, the government and all other parties in the internal and external environments of the organization. The public sector consists of the citizens, the government, and the international community who have influence on the activities of the country (Joyce, 2000).


The culture of an organization is very important and should be taken into consideration when conducting all the activities of the organization (Sicilia & Lipartito, 2004). Activities that affect the cultures of other people should be taken strategically to avoid conflicts which may result in failure of the organization. The management of any organization should learn the culture of the people before implementing any strategies. Business acquisitions and mergers should be strategically planned to ensure that no conflicts arise after the formation of new organizations. Inter boundary mergers should consider the difference in cultures so as to ensure all stakeholders are satisfied by the decision. The success of any organization depends on the decision making process. The managers need to improve on this procedure to avoid making decisions that will cause failure in the future. Communication is very important within the organization. Culture should be changed through proper communication channels to ensure that all stakeholders participate in the process. The management of public organizations is almost similar to that of the private sector. The people factor is the main focus point in both scenarios. The only difference is that the government controls all the activities in the public sector while individuals operate the private sector. Public sector is more complicated than the private sector.


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