Merger Analysis Essay Example For Free At Magic Help - Free Essay Example

Sample details Pages: 8 Words: 2411 Downloads: 4 Date added: 2017/06/26 Category Business Essay Type Analytical essay Tags: SWOT Analysis Essay Did you like this example? Mergers and acquisitions have long been an established form of corporate development to increase the strength of a business in an array of areas. The logic behind the Daimler and Chrysler merger was obvious, with Neubauer et al (2000) elaborating that it would potentially make the company an automobile powerhouse internationally and not just in mainland Europe. Furthermore, both companies felt that they were individually too small to challenge on a global scale in the long term. Don’t waste time! Our writers will create an original "Merger Analysis Essay Example For Free At Magic Help" essay for you Create order Chrysler were in agreement and believed the merger would generate enhanced prosperity. In 1998 Daimler paid $38 billion to takeover Chrysler in a horizontal merger (The Economist, 2000). The advantages of such a formidable merger are massive, with Gaughan (2007) believing that the primary benefits of a merger are synergy, value creation and competitive advantage. The merger of Disney and Pixar has symbolised these benefits with Barnes (2008) indicating that since 2006 Disneys stock rose by 28% in 2008 and revenue streams have continued to increase substantially. The two firms adopted a united approach, utilizing their expertise to increase the quality of their products. With Daimler ranked 17th and Chrysler 25th globally in 1988, the amalgamation would undoubtedly boost the value of the combined company, whilst also exploiting economies of scale which would allow the company to maximise profits, increasing share value. The sum of the whole was anticipated to be greater than the two p arts. The merger was claimed to be a merger of equals where the expertise and knowledge of the two companies would be combined to forge high quality marketable products. In reality this was not the case with Daimler thrusting their authority over Chrysler by installing German executives into senior positions within Chrysler. The scale of the failure of the DaimlerChrysler merger was illustrated when Daimler sold Chrysler to Cerberus for $7.8 billion in 2007, an astounding loss on what they had invested for Chrysler. Jensen and Ruback (1983. P.43) stated that on average target shares increase in price from 16% to 30% around the date of the tender offer. This does offer reasoning for why Daimler incurred such a loss. However, the issues are much more complex than this simple explanation. Jensen and Ruback (1983) believed such direct action was critical for corporate control. Sudarsanam and Mahates (2006) research would support this claim as they identified that hostile takeovers in nature tended to produce higher returns than a friendly takeover. From this aspect such a strong action was recommendable to achieve control. Johnson and Scholes (2000) believed a SWOT analysis was an effective method isolating the opportunities gained from a merger. Indeed such an analysis portrayed that the merger would allow massive market power growth, value creation and competitive advantage. A SWOT analysis in regards to the merger has been created below to illustrate the strengths, weaknesses, opportunities and threats of the merger. Daimler and Chrysler Merger SWOT Analysis Strengths Savings through economies of scale Large corporate brands Increased capital strength Competitive advantage through size Weaknesses Difficult to control and direct such a large organisation Two diverse cultures (European American) to infuse Different customer bases Opportunities Entry into new markets (Particularly Asia) and market expansion Innovation through combined expertise Potential to become a dominant market leader Threats Such a large merger can be high risk to the existence of both companies Newly formed DaimlerChrysler lacks any corporate identity, customers may not align with it Cultural Differences Matsumoto (1996, p.16) defined culture by stating that culture is the set of attitudes, values, beliefs and behaviours shared by a group of people, but different for each individual, communicated from one generation to the next. In contrast to the thought of Jensen and Ruback (1983) the ousting of management violated the long established culture within Chrysler, which in turn was the catalyst for the cataclysmic failure that was the DaimlerChrysler merger (Neubauer et al, 2000). Employees resisted the European style which caused great conflict and tension between the two organisations. Incidentally, this compromised the communication process, resulting in poor products and disappointing sales in relation to the size of the merger. Pritchett (1997, p.7) identified a failure rate of 61% in acquisition programs, with failure defined as not earning a significant return. This was very much the case for DaimlerChrysler, with the BBC (2000) reporting a record low share price of $42.79 fro m a high of $108 in 2000 for the company. Just two years into the merger performance was plummeting. The BBC (2000) also revealed that in contrast the merger of equals the Daimler chairman, Jurgen Schrempp actually viewed Chrysler as a division of Daimler and not as a partnership. As eluded to above, Schrempp directed Chrysler as a European company by replacing Jim Holden, the Chrysler president with Dieter Zetsche. Forcing this European style programme of change was greatly contested and fuelled disengagement from staff at Chrysler. Through Scheins (2010) theory of The Organisational Iceberg it is clear to isolate culture as an area which can be one of the most challenging barriers to introducing change. Schein (2010) attributed culture as part of the informal organisation which influences values, beliefs and conflict. If this is not confronted then attempt to integrate change will become extremely difficult (Senior and Swailes, 2000). Gertsen et al (1998) proposed that this fierce resistance to change was due to the fact that employees emphasise cultural differences to demonstrate their distinctiveness and social identity. Hofstedes (2002) Cultural Dimensions Theory found that culture within different organisations was influenced by which country they resided in. He developed the dimensions of national cultures which consisted of the power distance index, individualism versus collectivism, uncertainty avoidance index, masculinity vs femininity, long term orientation versus short term orientation and indulgence versus restraint. Hofstede (2002) found that these dimensions all varied in organisations depending on what their national identity was. From this it is clear to appreciate the huge problem of attempting to amalgamate a European and an American culture as there are so many variables. Daimler was very rigid and bureaucratic with Chrysler in contrast being much more informal. Daimler and Chrysler by their very cultures were incompatible, stressing the need for an effective change management programme. Haslam and Ellemers (2005) believed that there was positive correlation between the level of employees social identification towards the organisation and performance. It is apparent that a key reason for DaimlerChryslers drop in share price in 2000 was due to many of Chryslers employees seeing little association with themselves and their counterparts of Daimler. The companies in isolation varied in so many ways. For instance Daimler had a brand image of being a high end luxury brand while Chrysler was a low end cars and trucks manufacturer. These contrasts meant defining the very identity of the merger was plagued by paradoxs which meant both employees and customers failed to connect to DaimlerChrysler. Daimler had instilled a great emphasis on the operational and business synergies of the merger, seemingly ignoring the implications of culture. Human Resource Management The investment decision is one that is integral to any success of the allocation of capital by a company. Pike et al (2012) stated that the investment decision is the decision to commit the firms financial and other resources to a particular course of action. With culture being the predominant factor of the DaimlerChrysler mergers demise, the HRM policies of the chairman at any given time were equally responsible. Daimler had envisioned lucrative rises in profit yet they failed to invest in a strategic human resource management process which would introduce the desired change in an effective manner (Gaughan, 2005). Schuler and Jackson (2001, p.239) attributed the importance of HRM to the interpretation that companies today need to be fast growing, efficient, profitable, flexible, adaptable, future ready and have a dominant market position. HRM is critical to implementing these factors which the DaimlerChrysler merger had lacked greatly, providing evidence as to why in the 21st cent ury specifically that they crumbled. The transition of management and integration must be done in a systematic and people orientated approach (Schuler and Jackson, 2001). The HR issues associated with mergers can be categorised into two unique phases; Pre-Merger: Involves an analysis of the cultural differences and other issues such as the impact on employee morale. This stage reinforces the need for human resource planning as such an analysis would demonstrate major challenge. Solutions to such difficulties would be to modify the recruitment and development process whilst introducing specific appraisal systems. The protracted difficulties would be allocated an effective change management plan by the HRM department. However, Daimler critically undervalued this crucial aspect of a potential merger, which would have long term effects as explained. Post-Merger: The reality of the impact of the merger on HR related areas is revealed at this stage. The diverse HRM practices can uns ettle staff, with Chryslers staff resenting the European style of management, resulting in high levels of intransigence. Such emotional reaction diverts staff focus away from productivity, contributing heavily to laboured performance. The workshops devised by Daimler were not extensive enough to combat the massive cultural gap. It is imperative that strategic HRM is implemented to adjust a companys HRM strategy to that of the business strategy. For example Cisco has a culture constructed around risk taking and ambition. If they find that a protracted merger does not embody these values then they will refuse to force their culture on to a company, abandoning the prospect of the merger, such is the scale of problems which culture can present. There was also serious contemplation of separate headquarters such was the dismal level of communication between the two firms. Directions need to be from a centralised power source who is respected with Handy (1993) suggesting that this was t he ideal way to assume control and maintain effective decision making. Chryslers flat structure when compared to Daimlers hierarchical structure made it extremely difficult to initiate any HRM directives as both companies had different ways of doing so. The post-merger stage caused unprecedented difficulties for the merger as a result of little pre-merger analysis being undertaken. The cross-cultural differences were allowed to manifest into a massive concern with both Schrempp and Zetsche underperforming in their roles as chairmen of the merger. They distinctly did not commit their resources to developing training programmes which would have aided the alignment of Chryslers staff to that of the overall vision of Daimler. Tannenbaum and Yukl (1992) firmly contested that staff training was an area which should be reviewed regularly to ensure staff are being trained in accordance with the strategy of this business. Daimler did initiate HRM policies, but there was a lacking in depth. R egular staff appraisals and cross cultural learning days would have been methods of narrowing the gap between culture (Tannenbaum and Yukl, 1992). Conclusion From analysing the development and subsequent failure of the DaimlerChrysler merger it is abundantly clear that HRMs involvement in the change management process is integral. To overcome cultural issues, a tailored strategic HRM policy must be implemented such is the formidability of cultural factors. Daimler failed to realise just how potent the resistance of change can be and that as explained, originates from the informal structure of a company. It is undeniable that the Daimler and Chrysler merger had the potential to dominate the automobile industry due to their individually established size and profit margins. However, it was a mammoth failing as the two companies in reality were never able to amalgamate into a single corporate identity. AOL and Time Warner was a similar failing with the $164 billion deal eventually resulting in Warners stock diving by 80% (Bewkes, 2010). AOLs problem was that they did not anticipate that wireless internet and other relevant technology would revolutionise the broadband industry. They failed just like Daimler to analyse their threats and assess whether such a merger was of value. The Daimler and Chrysler merger was only a failure because Daimler underestimated the power that culture can forge. Strictly speaking, the merger for both companies was disastrous due to the stark culture gap, but equally so, this challenge was not managed effectively by the relevant departments. Perhaps the collapse of this huge merger can be embodied by Daimlers chief of passenger cars, Juergen Hubbert who is quoted as saying we have a clear understanding: one company, one vision, one chairman, two cultures (The Economist, 2000). Reference List Barnes, B. (2008) Disney and Pixar: The power of the prenup. The New York Times. [Online] Available from: https://www.nytimes.com/2008/06/01/business/media/01pixar.html?pagewanted=all_r=0 BBC. (2000) DaimlerChrysler shares hit new low. [Online] Available from: https://news.bbc.co.uk/1/hi/business/1090975.stm Bewkes, J. (2010) AOL merger was the biggest mistake in corporate history, believes Time Warner chief Jeff Bewkes. Telegraph. [Online] Available from: https://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/8031227/AOL-merger-was-the-biggest-mistake-in-corporate-history-believes-Time-Warner-chief-Jeff-Bewkes.html Gaughan, P.A. (2005) Mergers: What can go wrong and how to prevent it. New Jersey: John Wiley Sons, Inc. Gaughan, P.A. (2007) Mergers, acquisitions and corporate restructurings. 4th ed. New Jersey: John Wiley Sons, Inc. Gertsen, M.C., Soderberg, A.M. and Torp, J.E. (1998) Cultural dimensions of international mergers and acqui sitions. Berlin: De Gruyter. Handy, C. (1993) Understanding organizations. 4th ed. England: Penguin Books. Haslam, S.A. and Ellemers, N. (2005) Social identity in industrial and organizational psychology: Concepts, controversies and contributions. International review of industrial and organizational psychology, 20 (1), pp.39-118. Hofstede, G. (2002) Cultures consequences: Company values, behaviours, institutions and organizations across nations. 2nd ed. Great Britain: SAGE Publications, Inc. Jensen, M. and Ruback, R.S. (1983) The market for corporate control: The scientific evidence. Journal of Financial Economics, 11 (4), pp.5-50. Johnson, G. and Scholes, K. (2000) Exploring corporate strategy. Harlow: Pearson education. Matsumoto, D. (1996) Culture and psychology. CA: Brooke/Cole. Neubauer, F., Steger, U. and Radler, G. (2000) The Daimler/Chrysler merger: The involvement of the boards. Corporate Governance: An International Review, 8 (4), pp.375-387. Pike, R., Neale, B. and Linsley, P.M. (2012) Corporate finance and investment: decisions and strategies. 7th ed. Great Britain: Pearson Education Pritchett, P. (1997) After the merger: The authoritative guide for integration success. Texas: Pritchett and Associates, Inc. Schein, E.H. (2010) Organizational culture and leadership. 4th ed. San Francisco: Jossey-Bass. Schuler, R and Jackson, S. (2001) HR issues and activities in mergers and acquisitions. European Management Journal, 19 (3), pp. 239-253. Senior, B. and Swailes, S. (2000) Organizational Change. 4th ed. Edinburgh: Pearson Education Limited. Sudarsanam, S. and Mahate, A.A. (2006) Are friendly acquisitions too bad for shareholders and managers? Long term value creation and top management turnover in hostile and friendly acquirers. British Journal of Management, 17 (1), pp.10-17. Tannenbaum, S and Yukl, G. (1992) Training and development in work organizations. Annual Review of Psychology, 43 (2), pp.339-441. T he Economist. (2000) The DaimlerChrysler emulsion. [Online] Available from: https://www.economist.com/node/341352