Daimler and Chrysler in merger talks
Shares soar on prospect of $80bn deal
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Your support makes all the difference.DAIMLER-BENZ and Chrysler set the automotive industry alight yesterday after confirming they were in merger talks to create the world's fifth largest car producer with sales of $130bn (pounds 78bn) and a market capitalisation of $80bn.
A combination of Daimler, Germany's second biggest car group, and Chrysler, number three in the US, would bring together marques such as the Mercedes S-Class, the Jeep and Dodge Viper sports car and would pose a serious competitive threat to BMW and Volkswagen.
The merged company would sell 3.9 million cars and light trucks a year and have automotive turnover of $114bn, putting it within reach of the third and fourth biggest players, Toyota and Volkswagen.
The boards of the respective companies were meeting in Stuttgart and Detroit last night to discuss the merger after their shares soared earlier in the day on news of the potential deal.
Both companies cautioned that no definitive agreement had yet been signed, nor was there any assurance that such a deal would be reached.
If the talks succeed, Daimler, which is twice the size of Chrysler and also owns aerospace, rail and electronics interests, would acquire the US car maker through an exchange of shares. The deal would value Chrysler at $35bn, compared with a market capitalisation of $27bn before the announcement.
Although essentially a German takeover, there were reports yesterday that Jurgen Schrempp, the Daimler chairman, and Robert Eaton, the Chrsyler chairman, would become joint chief executives.
Industry experts gave the proposed deal an overwhelming thumbs-up, pointing out the two companies had very little product or geographic overlap. Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff University Business School, said: "This would be an alliance where the pluses easily outweigh the minuses. Mercedes has lagged behind its German rivals and this deal would allow it to leap Bob Beaman-style ahead of them."
Analysts said a combination of Mercedes' top-of-the-range saloons with Chrysler's strength in 4x4, utility and pick-up vehicles could give it an edge over the likes of BMW and enable the two companies to lever off each other's geographic strengths. Mercedes would get improved access to the US market, the biggest in the world. Chrysler, which has little presence in Europe after it pulled out of the market 20 years ago, would be able to use Mercedes' distribution channels to expand sales of its Jeep Grand Cherokee and Voyager range.
News of the negotiations boosted shares in Chrysler in early New York trading yesterday. The other two main car manufacturers in the US, Ford and General Motors, also saw their stocks rise. At mid-morning, Chrysler was up $5.75 to $47.25.
Daimler-Benz shares also soared on the Frankfurt exchange by over 9 per cent, before they settled at DM192.90, up 7.4 per cent.
US analysts welcomed the prospect of a merger, in particular as a means of boosting Chrysler's international presence as well as its position in the US, where its market share dipped last year to 16 per cent, behind General Motors and Ford. Its strength lies in utility and off-road vehicles with cars accounting for just a third of production.
"To some extent it is a hand-in-glove fit", said analyst Scott Merlis of Merlis Automotive International. "I would say it looks like a match made in heaven."
There was a mixed reaction from shocked Chrysler workers yesterday. Many expressed anxiety about the company essentially falling into foreign hands and the prospect of possible job cuts.
Daimler, with 300,000 employees and a turnover of DM124bn (pounds 42bn), is Germany's largest industrial conglomerate with 70 per cent of its sales from cars, trucks and buses. It is also a member of the Eurofighter and Airbus jet consortia and makes trains through the Adtranz joint venture with ABB.
Last year, the group recorded a profit of DM4.3bn. Despite a series of reorganisations in which Mercedes-Benz lost its autonomy, the car- making division remains the group's flagship and accounts for the lion's share of group profits.
Although Mercedes trades on its upper-crust appeal, it has lately been expanding into the sub-compact market with the A-Class and its upcoming mini Smart car.
The merger would complete a remarkable turn-around for a group that recorded an operating loss of nearly DM6bn in 1995. Jurgen Schrempp, chairman of Daimler-Benz, made severe cuts in the company's operation in 1996, ditching its investment in the aircraft manufacturer Fokker, among others.
A restructuring programme has put paid to thousands of jobs. Some of the group's divisions, notably the aeronautics arm Dasa, remain in the red.
Outlook, page 23
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