Benz, Chrysler merge to form car giant

The deal, which pairs Germany8217;s largest industrial group with Detroit8217;s third largest automaker, creates a global conglomerate with holdings in cars and light trucks, heavy trucks, aerospace, railway trains, automation technology and electronics.

Daimler makes Mercedes-Benz luxury cars such as the E-Class and the US-built M-Class sport utility vehicle, while Chrysler sells vehicles under the Chrysler, Dodge, Plymouth and Jeep brand names, mostly in NorthAmerica.

The fruit of the largest industrial merger of all time, the new company will have a market value of around 92 billion and annual sales of over 130 billion.

Daimler-Benz will take a controlling stake of 57 per cent in the new company with Chrysler taking 43 per cent, the two firms said. The companies said no plants would be closed and there would be no redundancies as a result of the merger. The deal will trigger cost savings of 1.4 billion in 1999 and then substantially more than five billion marks annually within only a few years, they said.

Daimler Chrysler will be one of the three largest carmakers in the world in terms of revenue, stock market capitalisation and profits. According to 1997 figures, the two firms had a combined workforce of 421,000, sales of 130 billion and pre-tax profit of 6.9 billion.

Daimler described the deal as a merger of equals, and said Daimler Chrysler will be co-led by Daimler chairman Schrempp and Chrysler boss Robert Eaton, each running jointheadquarters for the company in Stuttgart and Auburn Hills, Michigan.

But Daimler said that Eaton will leave the new company8217;s board in three years, and the terms of the deal revealed that Daimler is clearly the senior partner. Under the pact, Chrysler shareholders will receive 0.547 Daimler Chrysler shares per Chrysler share, giving them 43 per cent of the new company8217;s share capital.

Daimler shares will be traded in to the new company at a one-to-one ratio. Confirmation of the merger sent Daimler shares, which surged on Wednesday on confirmation of talks between the two companies, to fresh highs, climbing over eight per cent in early trade to 209 marks.

Shares of Chrysler surged 17.8 per cent to close at 48.81 in US trade on Wednesday after sources there said the merger would go ahead. Analysts have welcomed the merger plans, saying the two firms are a good fit, with Daimler looking for an opportunity to expand in the US and beyond its luxury car base.

Chrysler, meanwhile, stands to benefit fromDaimler8217;s engineering prowess and access to the European market where it holds only a tiny market share. But the deal8217;s real value may be that the two companies will now be able to reduce administration costs, share research and development expenses and secure better component prices, analysts said.

The merger will also increase pressure on other carmakers to follow suit in the light of the tremendous overcapacity in the sector. It will also shift attention to Daimler8217;s major German rival, BMW AG, which has tried to enter the volume car market through its 1994 takeover of Britain8217;s Rover group, but has yet to see any return on its investment.

What it means for India

MUMBAI: The proposed merger of Daimler Benz and Chrysler will have an impact in India as the former is already operating here through Mercedes Benz India Ltd MBIL, the joint venture company between Daimler Benz and Telco. Chrysler has been keen on a presence in the country for quite some time now though its plan to tie upwith Mahindra and Bajaj did not work out.

In fact, Chrysler broke off with Mamp;M after the Indian company signed a joint venture with Ford Motors. It asked Mamp;M to stop using the Jeep8217; brand.

Chrysler later shelved its plan to set up a venture in India. On the other hand, Daimler Benz increased its stake in MBIL from 51 per cent to 81 per cent. Benz also has a stake in Telco. After the merger, Chrysler would be able to launch its models through MBIL.