Big deals create massive challenges, especially when American icons are involved. Few companies are better thought to represent America than Chrysler, the nation’s third largest automobile manufacturer and seventh largest industrial corporation. So the opportunities for everything from a protectionist uproar to labor unrest seemed rife. Yet Chrysler’s merger with Daimler-Benz has proceeded with seemingly amazing smoothness.
Part of that is timing. With America’s economy relatively robust and its position as the sole superpower, losing one of the big three to Germany doesn’t seem that big a deal. The media’s attention has been focused elsewhere. Those venues that have expressed doubts have been ignored by the vast majority of outlets.
Like any good investor relations team, the Daimler and Chrysler IR people handling the merger attribute the deal’s smoothness so far to the qualities of the companies involved, not to their own efforts. ‘I think the opportunity of the two companies is so terrific and they’re so complementary that right out off the shot we got a terrific glow in the marketplace,’ enthuses Sam Messina, Chrysler’s director of investor relations.
‘The deal is one that’s well appreciated by Wall Street in terms of the kind of value that it delivers to shareholders,’ says Richard Wolfe of Golin/Harris Communications in New York, which is providing PR and IR support to Chrysler. ‘From a financial and operational perspective, when the Street looks at this, I think it’s an exaggeration to say the deal sells itself, but it’s not an uphill battle,’ he says.
Smooth reception
Still, investor and public relations management has obviously played a crucial role in ensuring a smooth reception to a potentially controversial marriage. Experts say IR executives at Chrysler and Daimler have handled things well. ‘There is certainly a challenge there from the investor relations perspective,’ says Ernie Sando, senior managing director at Georgeson & Co in New York. ‘For example, US shareholders will perhaps not understand what their investment is because they’re not familiar with ADRs, and in some cases, institutions are not permitted to hold ADRs.’ In addition, since the merger of these two companies would result in many duplicate shareholdings, it’s absolutely crucial that the shareholder base be thoroughly researched to anticipate the likely reactions of different institutions. ‘Some will want to increase their holdings while others will find themselves overweight and want to bail out,’ Sando notes.
And because the merged DaimlerChrysler will not be a US company, it will have to come out of the S&P 500, leaving a number of index funds bound to switch out of the stock. ‘Certainly in a cross-border merger like this, one needs to have a thorough understanding of the shareholder base,’ Sando concludes. Other potential trouble spots range from the impact of the merger on trading activity to satisfying the myriad of different international constituencies that will feel the deal’s impact.
‘Obviously, this is something that could have had all sorts of negative repercussions,’ says Ralph Ward, publisher of Boardroom Insider and a specialist in corporate governance. ‘The concerns about an American icon getting bought out by the Germans seem to have been pretty well subdued,’ he says. ‘From what I’ve seen so far it’s been handled well,’ he says.
Though those that are involved are loath to admit it, that handling has taken a lot of time, effort and planning. Mergers that cross national and continental boundaries are inevitably enormously complex (see Hands across the water, page 83). Partners must untangle vast jumbles, flaws, procedures and customs. ‘The challenges are derived from the fact that it’s really a first and unique and benchmark transaction with respect to both the size and its global reach,’ Wolfe says.
German and European financial practices are virtually ensuring that the overseas side of the merger will involve dramatic logistic and managerial challenges, executives say. ‘The rules are different and in this particular case a bit more difficult over here,’ says Eckhard Zanger, Daimler’s head of international relations. Opportunities for friction and pitfalls are rife, which is why Chrysler’s so-far smooth landing holds some important lessons for mergers of all sizes.
Following the rules
One thing the Daimler-Benz/Chrysler merger demonstrates most clearly is that even the largest deal must follow the rules rather than make them. Those rules are the following.
- Aggressively reach out to the investment community. Almost as soon as the deal was announced on May 7, Daimler and Chrysler flew strike teams into key financial markets. The meetings did a number of things, including enabling the principals to seize the agenda when it came to conversations about the merger. ‘It’s a matter of getting the co-CEOs out together,’ Wolfe explains. ‘Daimler is the most American company in Germany, so the gulf people would say they see is not really as wide as it appears at first glance.’
- Take care of small as well as large shareholders. Although institutional investors own an easy majority of the shares, smaller players can have a great influence on regulators and politicians. Chrysler and Daimler are doing their best to make sure this audience is taken care of.
‘The retail investors need a good deal of hand holding, a lot of explaining,’ Messina confirms. ‘We’re spending a lot of time on the phone trying to educate the retail investors,’ he says. ‘Most of the large investors have been up-to-speed and totally in support of this program from day one.
- Understand the tempo of the times. Different times call for different tacks in terms of presenting a deal to the investment community. The extent to which downsizing is no longer flavor of the month is made clear by the success of Daimler and Chrysler’s Merger for growth approach. At the same time, Daimler chairman Jürgen Schrempp’s nickname of Neutron Jorgen appears to have reassured the financial community that cost controls will be a priority. Although there have been a few islands of skepticism, coverage in general has overwhelmingly focused on the merger as a spur to growth – a drumbeat Daimler and Chrysler have hit time and again.
- Counsel patience. Making people aware of the difficulties involved in untangling the global marketplace can buy a company a considerable amount of time and forgiveness. A significant portion of Daimler and Chrysler’s efforts have focused on explaining the European marketplace’s intricacies to the American investment community, and vice versa. People are more likely to forgive delays and difficulties if they are warned that these are going to happen.
- Allocate appropriate resources. Explaining mergers to the global financial community and getting approval for them can require an enormous effort. That’s especially true in Europe, where the shareholder meeting for the merger is expected to draw 15,000 people. As this issue of Investor Relations was going to press, both companies were preparing for their special meetings to garner shareholder approval for the deal. ‘After that’s done,’ explains Tony Vecchio of Georgeson’s proxy division, ‘Daimler-Benz needs to do an exchange offer. A minimum 80 percent of its shareholders have to submit their shares [to be exchanged into DaimlerChrysler shares], whereas for Chrysler the share switch is pretty well automatic.’
- Define roles clearly. With so many different tasks to handle, assigning clear roles to each company – and then to individual personnel – becomes crucial. Daimler and Chrysler delineated responsibilities from the moment the deal was announced. ‘Daimler is pretty much handling the European investors, and I am still handling US investors,’ Messina says. That’s simply a logical allocation of talent and expertise, he says. ‘I represent Chrysler, and I have counterparts over there in Germany; we’ve all been in place for a lot of years,’ he says. At the same time, Messina sends the message that the two companies have been issuing repeatedly: whatever happens, the American side of the venture will not be neglected. ‘As we go forward, we will definitely continue to maintain offices on both sides of the Atlantic,’ he says.
- Spin the numbers aggressively. Creative use of business information is an essential part of good investor relations. From the moment the first press release was issued, the two companies have made sure the numbers portrayed their venture in the most favorable light.
Among other things, for example, the release notes that Daimler-Benz and Chrysler sold nearly 3.3 bn cars and light trucks in 1997; but it does not point out that Daimler accounted for just 715,000 of those sales. The release also said Daimler scored $2.4 bn in profits for 1997, compared to $2.8 bn at Chrysler. But it did not focus on the fact that these Chrysler profits were after-tax whereas Daimler’s were pre-tax. After taxes Daimler’s profits came to $1.7 bn.
Fortunately for the IR teams, however, the negative buzz failed to catch on. Although local media such as the Detroit Free Press expressed doubts, uncertainty about the deal was not picked up by wider media.
Indeed, initial shareholder response to the agreement was overwhelmingly positive. Though the final results were still uncertain at press time, a strong foundation had clearly been laid for the deal’s approval. And that alone is an investor relations success.
