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Love at First Sight

The event was known as "DayOne." The extent to which this appellation was acknowledged was surprising to me in that not only did it figure prominently in the coverage that appeared in the DetroitFree Press, but it also made it to the pages of USA Today.

The event was known as "DayOne." The extent to which this appellation was acknowledged was surprising to me in that not only did it figure prominently in the coverage that appeared in the DetroitFree Press, but it also made it to the pages of USA Today. DayOne, in case you missed it, relates to the merger between Daimler and Chrysler on November 17, 1998. One thing that can be said about DayOne with a high degree of certainty is that they clearly have one heck of a PR staff working at DaimlerChrysler in order to get this kind of visibility and coverage.

One of the points that's regularly made in this space is that events seem to be happening more quickly nowadays. It is a relentless pace that's just getting faster and faster. Although some people may rightfully pooh-pooh such a winsome claim, the DaimlerChrysler experience provides credence. That is, chronologically, Juergen Schrempp and Robert Eaton—now co-chairmen of the outfit—met in Detroit on January 12, 1998. Schrempp was in Detroit for the North American International Auto Show. Depending on when you get this issue, that's either exactly or approximately one year ago right now. According to all that's been revealed so far, this was something akin to love at first sight. There had been no substantive pre-meetings. The position is that here were two companies, both doing well product-wise and financially, so it wasn't a case of one company faltering, looking for something to hang onto lest there be a rapid descent into corporate oblivion.

A month after that meeting there were small group meetings with representatives from both sides of the Atlantic, trying to figure out if a merger would make sense. During March and April there were still more get togethers, not only of the teams, but also of Schrempp and Eaton. On May 6, in London, the merger agreement was signed. On July 23, the European Commission gave its approval. On July 31st the Federal Trade Commission weighed in affirmatively. The 18th of September was a big day as it was the day when the shareholders had to provide their approval. 97.5% of the Chrysler shareholders gave approval; 99.9% of the Daimler-Benz shareholders gave their nod.

Which led to DayOne.

If you look at the numbers, you'll discover that the market capitalization in November was $75 billion. In terms of spending for both capital expenditures and R&D, Daimler-Benz had spent $9.6 billion in 1997; Chrysler had spent $6.8 billion. The combined company had a total of 421,000 employees in 1997, of which 137,000 were in North America, 228,000 were in Germany, and 56,000 were in other parts of the world.

No matter how you slice, dice or rice it, this coming together of these two companies was a big deal—in more ways than one.

Coincidentally, while contemplating the days before and after DayOne, I was reading The Trillion-Dollar Enterprise: How the Alliance Revolution Will Transform Global Business by Cyrus Friedheim (Perseus Books; 253 pp.; $25.00). Friedheim, vice chairman of Booz-Allen & Hamilton, who has been thinking about and studying mega deals for the past 15 years, argues that in many cases mergers and acquisitions aren't the right way for organizations to go. Instead, alliances are better. As he puts it, "Alliances are profitable; they enable companies to add capabilities without major investment; they are becoming central to the strategies of growing corporations; and networks of alliances are beginning to form. The evolution from the global corporation to the relationship enterprise is taking place today." Not that he doesn't think mergers will continue. He admits, "mergers, supermergers...and megamergers...will take place whenever integration of assets favorably changes the economics and industries."

If a merger is a marriage, then an alliance is like, well, heavy dating with a specific set of expectations spelled out once things go from idle interest to hot and heavy. "There are many types of alliances," Friedheim writes, "but commitment is what makes alliances strategic." He notes that alliances permit individual companies to maintain their own specific characteristics (cultures, norms, behaviors, nationalisms, etc.) while having the benefit of leveraging the resources—be they factories or distribution channels or whatever—of another company (or companies).

Even if you aren't likely to be involved in the negotiations for creating an alliance with another company, The Trillion-Dollar Enterprise is worth your while because Friedheim indicates that the auto industry is one that will be characterized by trillion-dollar enterprises within the next decade. Put another way: You may be working at one, so it is useful to understand what you're going to be getting yourself into.

One interesting aspect is that these alliances are not founded as much on buildings or other resources as on brains. He writes, "A sound argument can be made that for most international trade other than that in natural resources and agricultural products, knowledge is the dominant driver. If two countries produce cars, one imports the cars of the other not because there are no cars available locally, but because the other country has figured out how to produce a car better suited to the buyer—knowledge." So to make it, keep learning.

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