M&A WAR STORIES - The Good, The Bad and The Ugly


July 20, 2021 Robert Heaton & Toby Tester
M&A WAR STORIES - The Good, The Bad and The Ugly
Show Notes

This week Robert and Toby discuss the failed 'merger. between automotive giants Chrysler and Daimer-Benz. On paper this was supposed to be a win-win. The $36 Billion 'Merger of Equals' was supposed to raise Benz's market share in the U.S. auto market. Chrysler was supposed to improve its vehicles through Daimler-Benz' car expertise and the combined strength of Daim;er-Chrysler would stave off competition from the Japanese and deliver synergies and other benefits worth $8 Billion

Nine years later PE Group Cerberus paid $7.4B for Chrysler. This is a fifth of the price paid. Chrysler was demerged and the tombstone proclaimed it to be The most unsuccessful merger of modern times.

So what went so badly wrong?  Well, cultural issues at both companies certainly didn't help. The tyranny of distance between the jont CEO's (one in the Us and one in Germany) A view by Daimler-Benz that anything with the Chrysler name on it was inferior, seriously lost opportunity to leverage Chrysler's industry beating 2 year timeframe for concept -to showroom and massive differences in pay-scales and reward bonuses are just a menu of challenges that stopped any post merger integration efforts.

The Post Mortem

  1. By 2001, the value of the combined company had dropped to roughly that of Daimler-Benz before the merger.
  2. Potential synergy savings ($8B)  between the two companies did not seem to take effect. 
  3. By 2003 the Chrysler Group had cut some 26,000 jobs and was still losing money
  4. The internal turbulence within the company and the disappointing integration led to further falling profits. 
  5. In 2007 Cerberus Capital Management paid  $7.4 billion for Chrysler group.
  6. The German automaker went back to Daimler.
  7. Chrysler was demerged.

The key lesson is summed up nicely by Toby and will probably go down in history as one of his greatest quotes.

Every day, wrong companies are purchased for the wrong purpose, with wrong measures for valuation. This results in wrong things integrated into wrong operating models.