Auto giants' talks steadily accelerated Principals in merger of Daimler, Chrysler reveal deal's details

Changing 'face of industry'

Secret meetings between negotiators held at car show

May 08, 1998|By Bill Glauber | Bill Glauber,SUN FOREIGN STAFF

LONDON -- The first date was in January near the Detroit Auto Show. The secret rendezvous took place in New York, Frankfurt and Geneva.

Finally, the flourishing romance between America's Chrysler Corp. and Germany's Daimler-Benz became a full-scale union Wednesday, when the corporate chiefs met at London's Dorchester Hotel, signed contracts near midnight and offered champagne toasts in English.

Yesterday, the deal makers revealed details of the biggest industrial merger in history, as Chrysler is to be acquired by Daimler-Benz for more than $39 billion in stock. The landmark transaction, which still must be approved by shareholders, government regulators and the Daimler-Benz supervisory board, could transform the landscape of the world automaking industry.

The new company, called DaimlerChrysler, combines German engineering and luxury with American marketing and muscle. It also crosses a range of vehicles, from German luxury-class sedans to Jeeps, minivans and light trucks produced by the No. 3 U.S. automaker.

Chrysler Chairman Robert J. Eaton hailed the deal as changing "the future, the face of the industry." Daimler chief Juergen Schrempp said it was a "marriage made in heaven."

"The two companies are a perfect fit of two leaders in their respective markets," Schrempp said. "Both companies have dedicated and skilled work forces and successful products, but in different markets and different parts of the world."

The corporate chiefs said there would be no plant closures and no job layoffs for the firm, which would employ 421,000 people worldwide and boast annual sales of $130 billion.

"We will not only create jobs on both sides of the Atlantic, we will create exports out of Europe and the United States," Eaton said.

Eaton and Schrempp will head the firm, with an 18-member senior management team drawn from both companies. Schrempp will take control when Eaton retires in three years.

The new group will have two headquarters, one in Auburn Hills, Mich., and one in Stuttgart, the Daimler-Benz home, with board meetings alternating between them.

Both companies' product ranges and dealerships will remain separate. The joint firm expects to enjoy savings of $1.9 billion in 1999 and $3 billion in five years as purchasing, parts, research and technology are melded.

The chiefs said they hoped the deal would be completed by year's end. Chrysler stockholders will receive 0.547 of a DaimlerChrysler share for each share they now own. Chrysler shareholders will hold approximately 43 percent of the new company, and Daimler-Benz shareholders will hold approximately 57 percent. Daimler-Benz also will also assume about $2.3 billion in Chrysler long-term debt.

Chrysler shares gained another $4.6875 yesterday to close at $53.50 -- up $12 since news of the deal first leaked out Tuesday. Daimler shares rose 4.7 percent to 202 deutsche marks, bringing its two-day gain since the initial reports to 13 percent.

Merging cultures

The hardest task the new firm may face is how to combine their corporate and national cultures, with Chrysler boasting decentralized American management, while Daimler-Benz adheres to a starched German bureaucracy.

"As far as culture is concerned, it was precisely one of the reasons why the two of us agreed that we wanted to run the company for some time together," Schrempp said. "I know and Bob [Eaton] knows that integrating merging cultures is possibly the greatest art of management."

The men said that creating this deal showed that the corporate cultures could be blended.

It took the participants four months to get to the corporate altar. ,, Chrysler and Daimler-Benz have flirted before over possible joint ventures. But this was something different, a so-called "merger of equals."

The first meeting between the two bosses was held during the Detroit Auto Show in early January at Chrysler's Auburn Hills headquarters. Schrempp, 53, tough and taciturn, wanted to meet with Eaton, 58, a smooth team player. According to company insiders, Daimler-Benz had been scouting around for a merger partner since August 1997.

In Eaton, Schrempp discovered he had found a willing partner. The two men shared a passion for autos and Cuban cigars.

"I was excited," Eaton said of the first meeting. "I had previously VTC said there would be a consolidation of the industry. I told him [Schrempp] that as a matter of fact, I was thinking about the same thing."

Cleveland and Denver

Within two weeks, the two chiefs triggered months of secretive talks among small teams of negotiators and investment bankers, with Chrysler code-named Cleveland and Daimler code-named Denver. In the elite corporate suites at Chrysler, the venture was dubbed, "Project Gamma." It was decided that the negotiators would meet just about anywhere but their corporate homes. Clandestine meetings were set up around the winter tour of auto shows in New York and Geneva.

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