Group III – Grade 10 – Tama, Matthew, Malvin, Hafiz, Vanya, Igo Horizontal Mergers Horizontal mergers are mergers between businesses that deal with the same stage(s) of the production of same or similar products. Below are examples of horizontal mergers:
Daimler – Chrysler (1998 – 2007)
Daimler AG, based in Stuttgart, Germany was one of the world’s most prolific producers of automobiles, its operations dating back to 1886. It produces multiple brands such as Maybach, Smart, and Freightliner. One of its most famous divisions was Daimler-Benz, which was founded by the way of a merger between Daimler and Benz & Cie. in 1926. Its subdivision Mercedes-Benz produces a variety of luxury automobiles.
Chrysler LLC, based in Detroit, Michigan was too a noted manufacturer, producing automobiles under Chrysler, Jeep, Dodge, among other brands. Fiat currently owns it by majority shares and aims to possess 58.5% of its shares by the end of 2011.
Both companies merged in 1998. The move was initially a success, with DaimlerChrysler ranking fifth among auto manufacturers in revenue and fifth in units sold. However, in Q3 of 2000, the merged entity lost over half a billion US$. Projections of continuous loss caused the company to announce that it would cut 26,000 jobs at Chrysler. After almost a decade of losses, Daimler eventually sold Chrysler to the private firm Cerberus Capital Management for £3.74 billion. Both companies have begun to recover after the deal, with Daimler earning a net profit of €4 billion throughout 2007. The failure was partly caused by cultural differences between the two companies. While the merger seemed strategically sound at the beginning, Daimler’s methodical, hierarchical decision-making conflicted with Chrysler’s emphasis on creativity and individual opinions. This diseconomy of scale caused a number of bureaucratic problems that eventually led to much loss.
Exxon – Mobil (1998)
Exxon, also known as Jersey Standard, was an American oil company dating back to Standard Oil’s breakup in 1911. Its business primarily consisted of a gas station chain throughout the United States. It also sold a variety of oil products for automobiles.
Mobil was originally a fellow successor of Standard Oil under the name of Standard Oil Company of New York. Much like Exxon, it ran a brand of gas stations and manufactured a range of oil products.
By the time both companies reunited on 30 November 1998, they had grown into massive financial empires on their own rights. The result of the US$73.7 billion merger, the largest in the US corporate history, is now the largest non-state-owned oil company in the world. After the divestments mandated by the US Federal Trade Commission, including the sale of 2,431 gas stations across the United States, the merged entity went on to acquire astronomical amounts of profit, making an all-time record quarterly income among any business of $10 billion in Q3 2005. However, rising crude oil costs has caused ExxonMobil to start backing out of retail oil business since June 2008, with a vast majority of its gas stations being gradually sold away to other operators.
AT&T – BellSouth (2006) AT&T Corp., originally American Telephone and Telegraph Company, was an American telecommunications company founded in 1885 by Alexander Graham Bell’s American Bell Telephone Company. Throughout most of the 20th century, AT&T monopolised American landlines, controlling long-distance calls and owning a large number of companies servicing local calls. In 1982, the US government forced AT&T to divest its regional operations into seven Regional Bell Operating Companies. Among these were Southwestern Bell Corporation, which later became AT&T Inc., and BellSouth Corporation.
AT&T Inc. merged with BellSouth in an $86 billion deal in December 2006. Among the conditions imposed by the US Federal Communications Commission were a special $19.95 per month price tag for stand-alone basic high-speed Internet service and a promise for the next two years to adhere to specific Network neutrality rules.
Sources CNET News – http://news.cnet.com
CNN Online – http://money.cnn.com
Dow Jones Market Watch – http://www.marketwatch.com
Reuters – http://www.reuters.com
BBC – http://www.bbc.co.uk
Bloomberg – http://www.bloomberg.com
USA Today – http://usatoday.com