Introduction
As the world gets smaller and new issues arise daily, no dimension of life is left behind. Globalization and trade liberalization has seen many practices that were hitherto unknown being adopted in the field of business. One is totally left mesmerized at the new developments that continue to gain root across the globe. Gone is the error when business operations were confined to specific localities and individual interests. As a result, several new terminologies associated with global business have been seen to crop up daily. Mergers and acquisitions are such new terms that have gained much dominance in the last few years.
Mergers and Acquisitions
A merger is a situation that arises when two or more existing firms come together so as to do their operations under one umbrella. The shareholders in this case are offered an opportunity to acquire stock in the new firm that has been formed at the surrender of their old stock. In most instances, the firms that chose to merge are often of the same size hence the common phrase ‘merger of equals’.Acquisition on the other hand is a situation where one bigger firm takers over the operations of another usually smaller firm so that the latter firm completely ceases to exist (Maddigan, 2007). Mergers and acquisitions have come to gain much popularity in the world as many cases may prove. Several reasons abound as to why firms may chose to merge their operations. For instance different firms are usually endowed with strengths in different fields. If one firm has efficient marketing strategies while the other firm is good in administration, their merger may indeed prove to be quite beneficial. Firms may also chose to merge with a view of cutting down expenses and gaining from the benefits of economies of scale.
DaimlerChrysler
Inasmuch as mergers may prove to be quite beneficial to the parties involved, this is not usually the case in all mergers that are undertaken. Recent history is awash with cases where mergers have proved to be quite detrimental to the firms that have chosen that option (Zaima, 2004). Firms that were better prior to their mergers have been seen to dwindle in operations after amalgamating. This stimulates one to seek into the reasons as to why the benefits of mergers may not always be realized as presumed. One such merger that has failed to live up to its expectations is the DaimlerChrysler amalgamation that was consummated in 1998.Chrysler corporation was indeed the most profitable automobile manufacturer in the whole world in the mid 1990s (Zack, 2011). Its auto sales captured up to 24%of the US in 1997 alone. This created a good source o revenue base that helped the corporation capture the marked in several successive years. In the later part of that decade, the product development costs reduced to 2.8 % of the total revenues as compared to 6% and 7% for Ford and General Motors respectively (Pearl, 2010). Daimler on the other hand had its glory years in the same period characterized by skyrocketing sales of its luxury autos to the world.
The whole problem arose barely three years after the ‘merger of equals ‘ between Chrysler and Daimler. In 2001 the sales of Chrysler had greatly plummeted to approximately 14% while its revenue had shrunk by about 28% in the same time frame. While General Motors, Ford and other US auto makers were continuing to gain their market access, Chrysler Corporation was being bogged down by the challenges that had arisen courtesy of its unsuccessful merger with Daimler Corporation (Scott, 2008). Daimler on the other hand was nowhere next to better times. With its production operations majorly labor intensive, its luxury cars could not match up to the greatly mechanized production lines of Japanese car manufacturers which were rolling out Lexus and other luxury models at amazing counts (Shawn, 2005). Several reasons have been formulated to explain the why the merger eventually failed despite many prospects that it would be successful.
While it can be well argued that several mergers have failed to succeed in the last few years that are not always the case. Other mergers have indeed proven to be successful. Such firms have managed to blossom and prosper in their operations after amalgamating. One such classic example was the merger between Exxon and Mobil corporations that has surely managed to prove the test of time and prove the fact that mergers can always be successful. With their merger, the eventual company ExxonMobil has managed to lead the industry in the oil market. It has even managed to stay ahead f even the amalgamation of Shell and BP (Parks, 2002). This raises the question as to why one merger may be successful while another merger becomes a flop. It then begs a careful analysis and study of these reasons so that any potential merger is critically evaluated in the premerger stage before the decision to merge is eventually adopted.
The merger between Exxon and Mobil that was affected in 1998 after Exxon agreed to buy Mobil for approximately $75 billion proved to be one of the greatest megamergers in history (Heathcate, 2005). The two companies had projected that they would cut down costs by more than $2.8 billion per year after their merger. The merger arose out of the need to streamline operations in the oil industry which had continued to go haywire courtesy of several world events. This was majorly due to a series of crises in the Asian countries that were the major producers of the oil and the seemingly sharp decline in the world consumption of oil that had seen oil prices drop to $11 per barrel of crude oil from an earlier figure of $28 (Stacey, 2007). The whole situation was further aggravated by the fact that OPEC was unable to curb the production of oil from the member countries. These occurrences have created several inefficiencies in the oil market and several companies were finding it hard to cope. As a result, they were finding new avenues of surviving in the increasingly competitive market. Therefore in 1999, the merger was successfully completed that saw a new company Exxon Mobil with an estimated $83 billion in stock transaction and an expected annual profits of $8.1 billion (Bellamy, 2005). The growth of the company has continued to be very consistent and the corporation has continued to lead the market in the oil industry across the world.
Success and Failure: DaimlerChrysler and ExxonMobil
The success of Exxon Mobil merger can indeed be attributed to several factors which sadly enough could not be realized in the case of DaimlerChrysler. It must be recognized that while some of these factors could clearly be managed in the case of Daimler, others were purely a function of environmental issues that the policy makers had no control over. It is also important to note that the world of business is changing rapidly and what may be cause of a success story today may not necessarily hold for tomorrow. It is therefore prudent to critically analyze all the premerger aspects before embarking on a decision.
Culture Differences
The amalgamation between Daimler and Chrysler involved two companies that were totally in different cultural environments in the world. Chrysler in the United States and Daimler in Germany meant that mechanisms had to be found to harmonize the striking cultural differences that existed in the German management an American management. The management of DaimlerChrysler spent billions of dollars in sensitivity workshops in an effort to create awareness among the workers of the company in the two different locations (Zack, 2007). However, these attempts were not always successful as it totally became difficult to change one’s cultural orientation.
The same issue was fuelled by the fact that the original production outlook of the two companies was totally different. While Daimler was known to produce mostly luxury, fancy and special brands of autos, Chrysler on the other hand was a producer of vehicles perceived to be for blue-collar people. This fueled tensions between the management of the two companies to the extent that James Holden, the president of Chrysler from 1999 to 2008 describing the situation as a ‘marrying up marrying down’ phenomenon (Pearl, 2004). These tensions were further aggravated by the fact that American workers earned more than their German counterparts. The German workers could not therefore understand why they were paid lower than the Americans yet they worked for the same company.
The feeling of distrust between both the workers and the management of the two companies continued unabated and at some point, it even went public. Some Daimler executives were quoted swearing that they would never drive a Chrysler in their lives. This therefore clearly illustrates what challenges may be posed by different cultural orientations. It is known that Americans hold different managerial styles, values and attitudes compared to their German counterparts. Moreover, the corporate structures o many American corporations are different from those f German corporations. Daimler executives focused on keen engineering operations and quality while the American producers focused on risk-taking and mass production (Maddigan, 2008). These different systems could not be efficiently merged to create a smooth operational blend.
Exxon Mobil on the other hand involved a merger between two corporations in the same cultural environments. It was not therefore bogged down by the challenges that were evidence the case of the two auto producers. History had shown that the strengths of Exxon mostly lay in its good engineering capabilities that were very crucial in the oil industry. Moreover, the company had a very good history in financial management that had greatly enabled it to be a market leader in the post World War II era. Mobil Corporation on the other hand was known for its good marketing strategies. The executives at Mobil were also known to be very good at making lasting deals that were very crucial in the increasingly competitive market in the oil industry. The decision to merge the two corporations was therefore very timely in face of the global challenges that were realized in the oil sector. Sure enough, those prospects had been right. The executives of the two corporations came together and managed to steer the corporation into a market leader by joining the experienced financial management skills and good marketing strategies.
Four years after that amalgamation, that success had surely been confirmed. Between 2000 and 2004 Exxon Mobil had managed to earn over $76 billion in net profits and had generated over $120 billion in cash (Scott, 2009). The success of Exxon Mobil is perhaps one of the most celebrated mergers not only in the oil industry but in the whole world as well. It confirms the fact that similarity in operations and cultures is very crucial in firms that wish to merge their operations. However it may be quite impossible to find corporations that run their operations in a similar manner. Nevertheless, it requires that a slight similarity exists between the firms. Totally different cultures may prove to be a great impediment to the success of any proposed merger between corporations.
Implementation
The essence of any mergers is normally to put operations under a common management and to harmonize activities in the hitherto different firms. In this case, success can only be realized if the intentions of the merger and the guidelines that were set are clearly implemented. If operations are run in the same manner they were conducted before the merger, then the whole meaning of the merger is normally lost. ExxonMobil is a classic example where good implementation has seen the corporation faces the market with a lot of zeal despite the many challenges that characterize the oil market. The management clearly managed to bring the two firms under a common management to the extent that it was impossible to know whether the corporation was initially two separate entities save for the name. It shows that for the success of any merger to be realized, it is imperative that the management be harmonized so that no differing values and views are held.
DaimlerChrysler was greatly affected by the factor that it could not clearly implement all the changes that had been envisioned. Years after the amalgamation, the German division was managed by German executives while the American Division was managed by the Americans. It was therefore difficult to see the reason why the merger had been undertaken in the first place.
Mismanagement
Courtesy of the tensions that existed between the management of Daimler and the executives of Chrysler, relations never flourished between the two competing sides. The German managers felt that they could well conduct their own deals without regard to their American counterparts. As a result, each party was always in the dark regarding the operations of the other party. This could not yield any fruits considering that the corporation was one and had the same objectives. The sad eventuality was that Daimler managed to thrive and regain the luxury car market while the sales of Chrysler continued to plummet. This had the consequence o f brewing more tensions as the Germans felt that they were doing more of the bargain for their ‘lazy’ brothers in America. Exxon Mobil on the other hand had a clean bill of health as regards to its management. The management was smoothly blended after the merger and this saw operations conducted in an efficient manner.
Workers and customers
Much of the success story of Exxon Mobil lies in the manner in which the corporation has managed to treat its Workers and the customers it serves. Realizing that the workers are the greatest asset a one can have, the corporation has really taken it a duty to treat them in a proper manner so that they feel part and parcel of the corporation. That has not been the case in DaimlerChrysler where German workers felt they were given a raw deal in the whole bargain. ExxonMobil has also managed to offer the customers better and differentiated services so that even if they paid more, they felt the value for their money. Chrysler on the other hand continued with its conventional production methods without investing in research and development. This saw its sales plummet as customers opted for other car models that were more efficient and less costly.
Conclusion
It must be stressed that before any merger is consummated, its objectives and outcomes must be clearly understood. The strengths, abilities and skills of the firms hoping to merge must be well identified. In this case, the benefits of such a merger will clearly be seen and the outcomes appreciated.
References
Bellamy, J. (2005). Managing Mergers and Aquisitions. London: Hienemann.
Heathcate, W. (2005). Autoworld. New Jersey: Arcade.
Maddigan, R. (2008). Profitability of vertical Intergration. Berkeley : Carlifonia University Press.
Parks, A. (2011). Mergers and Aquisition lead to long term development. Newswire , 6 (3), 8.
Pearl, J. (2004). Investment banking Valuation: Mergers and Aquisitions. New York : John Wiley & Sons.
Scott, A. (2009). Mergers and Aquisitions in the Western Hemisphere. Paragon books: Toronto.
Shawn, T. (2004). Mergers and Aquisitions: A Global Agenda. Toronto : Prentice Hall.
Stacey, R. (2007). Corporate Governance in Aquisitions. Cambridge: Cambridge University press.
Zack, W. (2007). Mergers and Aquisitions: anew Global Formula. New York: Bantam books.
Zaima, J. (2006). Mergers and Aquisitions in the new Century. Oxford: Oxford University Press.