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Daimler’s Dr Z goes back to the basics

Daimler’s Dr Z goes back to the basics
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First Published: Mon, May 14 2007. 11 59 PM IST
Updated: Mon, May 14 2007. 11 59 PM IST
If you have to pay to get rid of a business and shareholders still cheer, that really rams home how bad a business you had. That’s what happened with Daimler when it offloaded 80% of Chrysler to Cerberus.
Cerberus may be paying a headline price of $7.4 billion (Rs30,340 crore) for an 80% stake. But when you add up all the other linked money flows, Daimler ends up paying about $650 million to be shot of the US automotive group. Daimler will absorb Chrysler’s negative cash flow until the deal closes. The negative cash flow is estimated at $1.6 billion. Netting all this off gives the $650 million cash outflow.
One of the reasons the German company’s shareholders were pleased was because they get a clean break. Daimler no longer has to shoulder Chrysler’s $17 billion in health care liabilities as this remains with Chrysler. The other bidders—Magna and Blackstone—were not apparently prepared to offer as clean a break. The other reason shareholders are happy is because this brings to an end a very sorry chapter in Daimler’s history.
The acquisition of Chrysler—unconvincingly dressed up as a merger in 1998—will go down as one of the worst cases of grandiose empire-building. The German company’s investors haven’t just lost a packet after issuing Chrysler investors with $37 billion of shares. The desperate need to manage a problem company on the other side of the Atlantic took Daimler’s eye off its core business, Mercedes.
Chrysler and Mercedes were originally supposed to share technology. But it was very hard to marry downmarket brands with a premium one. And arguably all the distraction contributed to Mercedes losing momentum vis-a-vis its great German rival, BMW. Since the original deal was announced, BMW’s shares are up 57% while Daimler’s down 33%.
Dieter Zetsche, the Daimler chief executive also known as “Dr Z”, now wants to go back to basics.
He’s even changing the company’s name back to Daimler from DaimlerChrysler. The original deal may have been the brainchild of Juergen Schrempp, Daimler’s boss at the time. But Zetsche was a member of the board that approved the deal.
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First Published: Mon, May 14 2007. 11 59 PM IST
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