In the end Dieter Zetsche was forced to pay the private equity group Cerberus – named after the mythological dog with three heads – $680 million to end the nightmare of the Chrysler acquisition for the Daimler shareholders. Thus ends the saga of one of the worst M&A deals of the past decade (only TimeWarner’s purchase of AOL was a bigger fiasco).
Here is what we know about the deal: Cerberus Capital Management is paying $7.4 billion to acquire 80.1% of Chrysler, but only $1.35 billion will go to Daimler. In return. Daimler is putting $2.5 billion in cash in Chrysler and lending it another $400 million. So Daimler is out of pocket for $1.5 billion and retains a 19.9% stake in the US auto company. This only the tip of the iceberg in terms of the overall damage to Daimler shareholders. Consider this: Daimler paid $36 billion in stock to Chrysler shareholders to acquire the company in 1998. During the ensuing nine years Daimler was forced to subsidize Chrysler’s losses; when one factors in the technical and management resources Daimler invested in the money-losing enterprise, the overall losses to Daimler shareholders probably approach $100 billion.
What are the lessons? The ill-fated acquisition of Chrysler will be a Harvard Business School case study in a disasterous cross-border merger. The deal was initiated by the egomaniac CEO Jürgen Schrempp, who dreamed of a global empire under the Mercedes Star (Welt AG). Schrempp’s decisions were rubber-stamped by a compliant board of directors, controlled by Deutsche Bank. Hilmar Kopper knew nothing of the US automotive industry. Little or no consideration was given to the disperate corporate cultures, or to a coherent strategy of integrating a luxury carmaker with a middle-end producer. It turns out that Stuttgart is a long way from Detroit, and it is impossible to manage a group as complex as Chrysler from a distance. Many more lessons will emerge over time, but it will be the employees and shareholders that pay the price. Dr. Z and the Daimler directors will continue to receive their lucrative compensation packages.
