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Thursday, May 7, 1998 Published at 11:53 GMT 12:53 UK


Merger is 'a marriage made in heaven'
image: [ The deal is the biggest industrial merger ]
The deal is the biggest industrial merger

Chrysler and Daimler-Benz's announcement of an industry-shaking merger to create a global auto giant caught analysts by surprise.

However industry experts say the two firms are a good fit and the markets welcomed the news with Chrysler share values up by 16% and Daimler-Benz up by 10%.

Daimler Chairman Jurgen Schrempp described it as a "marriage made in heaven".

Daimler was looking for an opportunity to expand in the US and beyond its luxury car base - Chrysler stands to benefit from Daimler's engineering prowess and access to Europe where it holds only a tiny market share.

But the deal'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.

If the deal goes ahead it will mean cost savings of $1.4bn in 1999.

Global pressure rises

The merger of two of the industry's top names will also increase pressure on other carmakers to follow suit in the light of the tremendous over-capacity in the sector.

Auto industry expert Karel Williams from Manchester University: "The deal isn't heavenly" (23")
It will also shift market attention to Daimler's major German rival, BMW, which has tried to enter the volume car market through its 1994 takeover of the British Rover Group, but has yet to see any return on its investment.

John Casesa, auto analyst at Schroder and Co., said: "I think that this will spark a wave of reaction from other car makers. Every auto maker is suffering with the same problem. Prices are declining and demand is not growing.

"So I think other car makers with strong balance sheets will respond by hatching similar deals.

"Those companies are GM Toyota, Vokswagen, Ford. These are all companies that could expand geographically or expand their product line with similar kinds of transactions."

Toyota president Hiroshi Okuda also said the planned merger reflected expectations of increasing competition on a global scale.

"It is my understanding that it is an attempt to boost competitiveness, looking toward the 21st century amid the globalisation and multinationalisation of corporate activity.

"I think awareness that competition in the automobile industry will further intensify on a global scale. I believe that, for Toyota Motor as well, further effort will be required," he said.


The largest industrial merger of all time will create a new company with a market value of around $92 billion and annual sales of over $130 billion.

Daimler-Benz will take a controlling stake of 57% in the new company - to be called DaimlerChrysler - with Chrysler taking 43%.

Daimler-Benz shareholders will be able to swap their shares for shares in the newly merged company at a ratio of one-for-one.

Chrysler shareholders will receive 0.547 shares in the new company for every Chrysler share held.

The new company will have two headquarters - in Michigan and Stuttgart, Germany - and will employ 422,000 people worldwide.

The companies said no plants would be closed and there would be no redundancies as a result of the merger, which is expected to go ahead by the end of this year.


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