Daimler-Benz's Role In The Automotive Industry

The automobile industry in particular the car industry faced tough economic environment during 90s and Chrysler was forced to come up with a strategy to prepare itself for the difficult times ahead in order to avoid facing bankruptcy one more time. At the same time, Daimler-Benz faced the exact same challenges as Chrysler in the international market for passenger cars. Among other things, the two companies were forced to manage the challenges imposed due to overcapacities, a strengthened position of the clients and increase in focus on environmental concerns. In addition to counter the mentioned difficulties, the German car manufacturer Daimler-Benz intended to strengthen its position in the U.S. market as well. Therefore, from Daimler-Benz point of view, the merger with Chrysler seemed very promising and Daimler-Benz hoped for gaining a vital competitive advantage for the future ahead of its peers in the same industry. Chrysler was evaluated as the perfect partner for such a deal. The American car manufacturer turned out to

An abnormal return of 30.9% was witnessed for Chrysler’s shares, and somewhat in contrast to large sample studies that find negative bidder returns, the shares of Daimler-Benz showed a positive excess return of 4.6%. At the close of market on 7th May 1998, the combined market capitalization of Daimler and Chrysler stood at $95.2 billion. The market capitalization of Daimler-Benz and Chrysler around the merger announcement was $10.2 billion greater than the combined market value of the firms before the merger announcement. The increase in firm value was consistent with the predicted expected benefits of $1.4 billion in the first year of merged operations and annual benefits of approximately $3 billion within the next 3 to 5 years of merged