Daimler-Benz, Germany's biggest industrial group, and Chrysler, the US car manufacturer, were yesterday on the brink of announcing a merger that would create the world's biggest link between two industrial companies.
The Chrysler board and Daimler supervisory board were meeting yesterday to approve the final stages for the deal to create a massive industrial group covering every corner of the motor industry. Some analysts estimate the value of the combined company at $35 billion (£23 billion). The transaction has already been approved by Deutsche Bank, Daimler-Benz's biggest shareholder, and by Mr Kirk Kerkorian, the largest shareholder in Chrysler with almost 14 per cent.
Chrysler shareholders are expected to be offered 0.56 of a Daimler-Benz share for every Chrysler share they own. The ratio will alter to 0.62 of a Daimler-Benz share once the German group gains approval from shareholders for the special dividend announced recently, which will reduce the stock's value once it goes ex-dividend.
The merged company is expected to have joint chief executives. There will be joint headquarters in the US and Germany. However, the group will be incorporated in Germany. That structure means it will retain a German-style board structure, with separate management and supervisory boards.
The news of the negotiations was received with astonishment by other car manufacturers and the financial community. Although Chrysler had been periodically rumoured to be in discussions with other manufacturers, BMW had been thought to be its most likely partner, rather than Daimler-Benz, whose product line includes the Mercedes-Benz.
Shares in both groups rose sharply as financial markets reacted positively to the news. Analysts said the merger would give both companies access to each other's markets and provide scope for cost savings.
Daimler-Benz's stock climbed by DM14.95 or 8.4 per cent to DM193.40, while Chrysler's shares stood at $48 up $65/8 by early afternoon in New York.
The prospect of a link between Daimler-Benz and Chrysler could prompt further consolidation in the world motor industry, in which profits have remained under pressure because of over-capacity.
Mr J T Battenberg, president of Delphi, the world's biggest car components group, said: "I think it's going to continue. The pressures on the industry are intense. The consumer is seeing price reductions for the first time in years and there's a tremendous need to reduce costs."
In spite of the apparently advanced nature of the negotiations, both sides stressed in a statement yesterday that no agreement had been reached and gave no assurances that a merger would take place in the end.
Chrysler, is the smallest of the US "Big Three" motor manufacturers but is widely seen as the most innovative. With revenue of $61.1 billion on total vehicle sales of 2.88 million units last year, the Auburn Hills, Michigan-based company is dwarfed by its two US rivals: General Motors, the world's biggest motor manufacturer with total 1997 revenue of $178 billion and Ford with revenue of $153 billion.
Daimler-Benz was being advised by Goldman Sachs, which was also involved in its recent attempts to gain control of Rolls Royce Motor Cars in Britain, and by Deutsche Bank. Chrysler was being advised by Credit Suisse First Boston.
Chrysler in Ireland is represented by Chrysler Jeep Ireland Concessionaires Limited, one of the companies in the OHM group, whose other interests include the importation and marketing of Saab, Jaguar and Seat cars and MAN trucks. The Chrysler Irish company is responsible for the Neon car, the Voyager MPV and the Cherokee and Wrangler all-wheel-drive vehicles.
Mercedes-Benz here is part of the Motor Distributors group, controlled by brothers Nigel and Michael O'Flaherty.
