Proposal of Case of Daimlerchrysler Merger/Acquisition

In: Business and Management

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Case of DaimlerChrysler merger

Introduction
The case is about merger and demerger of the two automotive companies which have dedicated and skilled workforces and successful products, but in different markets and in different regions of the world, i.e. Daimler Benz of Germany and other company is Chrysler Corporation of US which take place merger in 1998 and demerged in year of 2007. This study analyses the potential sources of value creation and destruction, and evidence on how this process has affected the valuation of the Daimler Chrysler merger. We also discuss some of the important issues that must be taken into account in cross-border mergers and acquisitions. Differences in corporate culture, compensation policies, ownership structure, and the legal environment may pose significant challenges to international business combinations.

This is the historic merger that will change the face of the automotive industry.

Context
In a Modigliani-Miller framework, if mergers do create value, they do so by changing tax liabilities, changing contracting costs, or changing investment incentives. If the size, timing, and riskiness of the combined future cash flows of the merged firms exceed the cash flows of the separate firms (“synergy”), the merger will be a positive net present-value project. They include:- Tax motivation Mispricing inspiration Market power high price hypothesis motivation Earning diversification stimulation

In the case of Daimler Chrysler merger, several potential reasons exist for the merger. Daimler derives 63% of sales from Europe, while Chrysler depends almost exclusively on North America for 93% of its sales. “Both companies have product ranges with world-class brands that complement each other perfectly. They wanted to continue to maintain their brands and their distinct identities.” Moreover, both companies are trying to…...

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