sources. The merger would increase the amount of money in Retained
Earnings that could be used in an expansion program. Through the pooling
of resources, DaimlerChrysler will be excellently placed to develop and
introduce new products even more quickly into the markets, thus gaining an
edge over competitors.
Achievements of the New Corporation
“DaimlerChrysler AG today reported a record operating profit of EUR
11.0/$11.1 billion in 1999, the company’s first full year of
operations. This is an increase of 28% compared to the 1998 figure of
EUR 8.6/$8.7 billion. Adjusted for one-time effects, principally the
sale of debitel shares and restructuring expenses at Adtranz,
operating profit grew by 20% to EUR 10.3/$10.4 billion. Operating
profit thus outpaced revenues which rose by 14% to a record EUR
150.0/$151.0 billion.”
Recently, the German financial magazine “Capital” conducted a survey
on the provision of shareholders’ information on the Internet. The overall
winner was DaimlerChrysler, which was recognized as the best provider of
company information on the Internet.
Survey of recent stock performance
Immediately after the merger, the stock price of the new company went
up very drastically. The reason for this is that investors strongly
believe in the future success of DaimlerChrysler.
Currently, the stock price is down. This fact can be explained by the
general performance of the market, which is experiencing very sudden
slumps. Many huge companies do not trade at all out of fear of prices
drop. Below is the chart of stock price performance of the DaimlerChrysler
since the merger.
Below is a valuation of DaimlerChrysler by analysts at Standard &
Poor’s.
“DCX has fallen sharply from its early 1999 peak. The automotive
sector has been out of investor favor for some time, with
DaimlerChrysler contributing to the negative sentiment with its much
lower than expected earnings in the second quarter. Despite DCX’s
attempt to portray the divergence from expectations as mostly
accounting and temporary items, the honeymoon for investors and
DaimlerChrysler is clearly over. DaimlerChrysler has a strong
balance sheet, with significant cash reserves available for the next
industry downturn, as well as for strategic investments and
alliances. With strong sales through September, we expect 1999
domestic automotive volume, led by minivans and sport utility
vehicles, DCX strengths, to reach a record. Still, given negative
investor sentiment and uncertainty in the company’s ability to meet
financial objectives, despite a strong third quarter, we would not
add to positions.”[ii]
Comments on some of the Financial Ratios of the New Corporation
As the ratios reveals new corporation by some of the ratios overcome
industry average. Valuation ratios show us DaimlerChrysler is in better
standing in comparison with the industry. Dividends payout ratio proves
that the company pays more dividends than average, but I think it is not
what investors expected and this lead to a drop in price of the stock.
Financial strength of the company in terms of LT Debt to Equity and
Total Debt to Equity ratios is almost twice stronger than the average in
the industry. Low return on Equity ratio might be explained by the fact
that the company keeps a lot of cash for the purpose of new investment. In
general, the company shows strong figures and this view is supported by
Standards & Poor’s specialists’ statement. “DaimlerChrysler has a strong
balance sheet, with significant cash reserves available for the next
industry downturn, as well as for strategic investments and
alliances.”[iii]
Government Concerned that...
One of the problems that can arise for the economies of the US and
Germany is downsizing of some of the departments. For example, one company
does not need two raw material purchase departments. In this case, the new
company will need both of its departments because of different languages.
The new company will provide more job opportunities for both countries.
There are two reasons why this might be so:
1) Expansion plans will require more people to be hired for the new company
2) Because of different languages, much of the documentation has to be
translated back and forth.
This figure shows expansion so far:
Since both companies are introduced to new markets and new
opportunities, they will have to increase their production capacities in
order to meet demand in the new market. This factor will require more
labor ( as can be seen from the above graph), so more people will be
hired. Government does its best to support companies that can provide more
employment opportunities for the population, because this contributes to
the solution to the unemployment problem. Simultaneously, with the increase
of labor involved in the production process, there will be an increase in
gross domestic product.
Environmental Issues in the New Corporation
Protection of the surrounding environment and conserving the natural
foundations of life should be one of the main concerns of every company and
every human being on the Earth. Due to lack of attention to these issues
the current environment conditions of the earth have changed dramatically
for the worse.
DaimlerChrysler is one of the world corporations that pays a great
deal of attention to environmental issues. Its management clearly
understands the importance of these issues in the long run. The following
facts speak up for themselves:
“DaimlerChrysler and the European Nature Heritage Fund (Euronatur)
presented an upbeat review of ten years of environmental cooperation
at a press conference in Berlin today. "The concerted efforts of
DaimlerChrysler and Euronatur have decisively moved forward
environmental protection and habitat security in important large
natural landscapes," a joint statement said.[iv]
“On March 29, 2000, DaimlerChrysler’s manufacturing facility in
Toluca, Mexico, introduced to production a new wastewater recycling
facility. The recycling facility will conserve precious water
resources and reduce the potential for pollution by totally recycling
all of the water used in the plant.”
In 1998, DaimlerChrysler spent $1.3 billion on environmental
protection, according to the company’s Annual Environmental Report. Most
of this amount (about $813 million) was spent on research and development
activities on green products and manufacturing processes.[v]
Conclusion
There is only one thing can be said about the future of the new
company—it is unclear. As one can see throughout the research, firstly
after the merger investors strongly believed in the future of
DaimlerChrysler, and as a result of that the stock price soared high.
Recently the stock price has dropped significantly, but some believe that
it is because entire market experiences slumps. As seen on the prior chart
of the stock performance, DaimlerChrysler’s stock price lost 1/3 of its
value. Another reason why the stock price slumps is that estimated
earnings did not match actual ones. As a December 1999, difference in
estimated and actual earning was ($0.64).[vi]
One of the positive aspects of the merger is intensified competition
in the auto-production industry. The new company is far from monopolist
size in this very giant market. General Motors and Ford Corporation are
still main competitors of DaimlerChrysler.
Bibliography
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[i] London CNN, http://CNNfn.com/, Monday, 27 March, 2000
[ii] Standard & Poors, Stock Report, March 4, 2000
[iii] Standard & Poors, Stock Report, March 4, 2000
[iv] www.daimlerchrysler.com
[v] www.daimlerchrysler.com
[vi] Yahoo Finance, Market Guide—Multex Earnings Estimates for
DaimlerChrysler AG
Indirect sources
1. World Motor Vehicle Data, American Automobile Manufacturers Association,
1998
2. www.yahoofinance.com, Market Guide—Comparisons for DaimlerChrysler AG
3. “The Causes and consequences of antitrust”; the public-choice
perspective; Fred S.McChesney, William F.Shughart II; University of
Chicago Press, 1995.
4. “The corporate merger”; William W. Alberts & Joel E. Segall;
University of Chicago Press, 1966
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