Making of a merger

Secretive talks nearly unraveled

Schrempp calmly smooths out details except for one point: Will he take ChryslerDaimler name?

Charles V. Tines / The Detroit News Chrysler’s Robert Eaton fought off a takeover attempt by Kirk Kerkorian. But his worries about the automaker’s future sparked talks with Daimler. Steve Haines / The Detroit News Daimler’s Juergen Schrempp calmed a nervous Eaton and worked out merger details. But in the final analysis, Schrempp and Daimler emerged in charge.

The Chrysler team was mobilizing in Auburn Hills for its flight to New York. A final meeting to tie up loose ends in the merger talks with Daimler-Benz was scheduled for the following morning. Bill O’Brien, Chrysler’s top in-house legal counsel, gathered documents in his office when he took a call from a Daimler-Benz lawyer, Siegfried Schwung, whom he had never met.

    O’Brien could not believe what he was hearing from Schwung. The lawyer said Daimler’s management board had several unresolved issues. O’Brien jotted them down, wondering what was happening. The issues raised were hardly minor points: the reloading of the Chrysler stock options for executives, the structure of the offer, even the name of the merged company. The tone Schwung took led O’Brien to believe that the deal was going very, very wrong. When he hung up, O’Brien hastily called Chrysler Chairman Robert Eaton at his home in Bloomfield Hills.

    When he heard what had happened, Eaton lost it.

    “What the hell is this?” Eaton yelled. “There’s no use going to New York. If these are the kinds of issues that are out there, it’s all off! Forget it. We’re not going!”

    O’Brien huddled with Chrysler’s chief financial officer, Gary Valade. Had Chrysler been double-crossed at the last minute? They had come so far, and now this. O’Brien tried to set up a call between Eaton and Daimler Chairman Juergen Schrempp, but Schrempp was unreachable, somewhere over the Atlantic Ocean on the Concorde headed to New York. Valade called Chrysler’s Wall Street adviser, Steve Koch, and told the CS First Boston banker that Eaton was threatening to call off the merger.

Misunderstanding nearly kills deal

After several attempts, Koch finally reached Goldman, Sachs’s investment banker working with Schrempp, Alex Dibelius in his room at the Four Seasons Hotel in New York. Dibelius and Eckhard Cordes, Schrempp’s closest strategist, had gone to the hotel after arriving on the Concorde, while Schrempp headed off to a dinner meeting with Goldman, Sachs Chairman Jon Corzine.

    “You are walking away from the deal!” Koch shouted over the phone to Dibelius.

    Dibelius didn’t have a clue as to what he was talking about. Koch told him about the call from Schwung to O’Brien, and how Eaton was ready to dump the merger.

    “If we don’t have these problems resolved and Eaton is uncomfortable, the deal is over,” Koch said.

    Dibelius pleaded for time. He called Daimler headquarters and tracked down Schwung, who nervously protested that he never meant to say that major issues were still on the table.

    Misunderstanding or not, the fate of the deal hung in the balance.

    After calming down, Eaton flew to New York on Chrysler’s G-4 with his team of executives. He repeatedly vowed to kill the deal unless Schrempp personally assured him that Daimler would live up to the terms of its agreement. “I’ll call it off,” Eaton kept saying during the flight and right up until he checked into his room at the Four Seasons.

    Schrempp arrived at the Primavera restaurant for his dinner with Corzine and other Goldman, Sachs bankers. The wine had been poured and the appetizers served when Dibelius and Cordes burst into the restaurant.

    “Juergen! Juergen!” Cordes cried. “The deal is off! You have to do something! You have to call Bob Eaton!”

    Schrempp eyed them, Dibelius said, “like schoolboys who are nervous about something they shouldn’t be nervous about.”

    “What is the matter?” Schrempp asked calmly.

    Dibelius and Cordes frantically explained the call between Schwung and O’Brien and Eaton’s threat to walk away from the merger.

    “I am not,” Schrempp said, “going to phone anybody.”

    “Juergen, you’re crazy!” Cordes yelped. “You have to call him!”

    “I want my spaghetti!” Schrempp bellowed. “I want this spaghetti then I will phone the guy.”

    Cordes and Dibelius couldn’t believe it. Schrempp brushed them off, but his nerves roiled inside. Still, he wouldn’t make a false move out of panic. “I had to play for time,” he said later. “When you talk to somebody who is freshly upset, then it’s not any good.” As Schrempp ate, Dibelius and Cordes sweated. At one point, Corzine got up from the table to use the restroom. Dibelius followed him. “Jon, this is really serious,” Dibelius said. “You have to tell Juergen to get on the phone.”

    When they returned, Schrempp had finished his spaghetti. He and Lydia Deininger, his assistant and constant companion, moved to a cramped back office near the Primavera’s kitchen. Deininger called the Four Seasons, asked for Eaton’s room, and handed the phone to Schrempp.

    “Hi, Bob!” Schrempp said to Eaton. “I’m in an Italian restaurant.”

    “I’m not interested in your food,” Eaton said sternly. “We cannot have a deal on the basis of these issues. Why don’t you tell me straight that you don’t want the deal?”

    “I don’t understand,” Schrempp said.

    “If you can’t agree to certain things, I can accept that,” Eaton said. “But if you don’t tell me straight, and you use that as an excuse not to have a deal, then I don’t ...”

    Schrempp cut him off.

    “Bob, I’m in such a good mood,” he said soothingly. “Let’s go through the items. Let’s see whether we have disagreements or complications.”

    For ten minutes, they discussed the issues one by one. Nothing, it seemed, was a problem for Schrempp. The name of the company was still up in the air, but Schrempp said even that wasn’t a problem. He would meet Eaton at 9 a.m. the next morning at the Four Seasons to confirm everything.

    “You really mean that?” Eaton asked, his voice now relaxed.

    “Sure,” Schrempp said. “Tomorrow, I can confirm it all again.”

    Schrempp returned to the table; all eyes were staring at him.

    “What happened?” Dibelius blurted out. “What happened?”

    Schrempp shook his head dramatically, saying the problems were very difficult, pretending that something terrible had taken place. Then he dropped the act and smiled broadly.

    “I fixed it,” Schrempp said. “No worries. Everything is going as planned.”

    Ruediger Grube, Schrempp’s bantam-sized planning specialist, hunted through the gift shop at the Four Seasons at 8 a.m. the next morning, May 4. Schrempp and Eaton were meeting in an hour to finalize the organizational structure of the merger, and Grube needed a big sheet of paper, something the two CEOs could draw on. Grube had already prepared a printed copy of the chart, but Schrempp thought it best to draw one up from scratch.

Schrempp warns final details crucial

    “I want to give Eaton the feeling that we are developing a common approach,” Schrempp explained. Grube couldn’t help but marvel at how Schrempp had orchestrated the merger from the very first day. It was so close now, but Schrempp cautioned Grube that the final details were crucial.

    “Always be careful,” Schrempp warned. “I will not accept that we make a mistake at the last minute. If you make a mistake at the last minute, then you are fired.”

    Because they had already agreed that Daimler’s CFO, Manfred Gentz, would be the chief financial officer, they had to find an appropriate role for Valade. At one point, Eaton left the room and talked to Valade in another suite.

    “Gary, what do you think about being head of global purchasing?” Eaton asked.

    Valade swallowed hard. He had hoped to be named CFO. He had no idea why he wasn’t getting the job.

    “That sounds okay,” Valade said. Eaton grinned and went back in with Schrempp. Then a curious decision was made behind closed doors. On the organization chart Chrysler President Tom Stallkamp was named president and placed on a level below Eaton and Schrempp, but above the other fifteen board members. Yet in his organizational “box” Stallkamp was designated as “President — Chrysler Cars & Trucks and Integration.” What Stallkamp would actually be president of would be a matter of debate in the weeks to come.

    Once they completed the chart, Schrempp and Eaton confronted the final issue.

    “Juergen,” Eaton said. “The name.”

    “Daimler-BenzChrysler,” Schrempp said.

    “No, that’s not it,” Eaton countered. “We have to call it ChryslerDaimler-Benz.”

    “How about DaimlerChrysler?” Schrempp said. “I’ll drop the Benz part.”

    “No, that’s not possible,” Eaton said.

    “You know,” Schrempp replied, “we will solve this in the end. If we can solve all the other issues, then we can find the right name in the end.”

    Their meeting broke up and they moved to another room where the two CEOs held a mock analyst meeting to prepare for the onslaught of questions when the deal was announced in three days. During the practice session, Grube wandered into the suite where the analysts had been waiting beforehand.

    On a bed, he spied a CS First Boston document with the name “ChryslerDaimler-Benz” typed on it. He took it and showed it to Schrempp, who confronted Eaton.

    “This is not so,” Schrempp said, pointing to the name.

    “That’s just a first draft,” Eaton protested. “I never saw this.”

    “Okay,” Schrempp huffed.

    That night, Eaton huddled with his executives, lawyers, and bankers to prepare for the next day’s meeting of the Chrysler board. The merger would go to a vote of the directors first thing in the morning.

    Schrempp flew back to Stuttgart to seal his own half of the deal.

How name game caused late snag

The Chrysler directors gathered at 8 a.m. in CS First Boston offices in New York. Just before the board convened, Eaton called Schrempp in Germany. He told Schrempp that the board was about to vote on a name — ChryslerDaimler-Benz.

    “No,” Schrempp said bluntly. “I cannot do that. It is DaimlerChrysler. We dropped Benz. If that compromise is not acceptable to you, we have a problem.”

    “The board wants Chrysler in front,” Eaton countered.

    “You tell your board that Daimler has to be the first name,” Schrempp said.

    “Juergen, that’s not possible,” Eaton said.

    “Then,” Schrempp said, “we have to cancel the whole deal. It is the showstopper for me.”

    The “showstopper”? The Chrysler directors were already in the CS First Boston boardroom, preparing to start. Eaton motioned to his Vice-Chairman Robert A. Lutz, [the charismatic ex-Marine being nudged toward retirement by Eaton], Stallkamp, and Valade to step into another room.

    “There’s a little problem with the name,” Eaton said.

    “Oh God!” Stallkamp burst out. “I knew this was going to happen. I just knew it.”

    “Schrempp says it’s a deal breaker,” Eaton said nervously. “What do we do?”

    “Look, it’s at the point right now where it doesn’t matter,” Stallkamp said. “If the deal is worth what we think it is and it’s such a good business combination, the name is only important in the short run to the morale of one side or the other.”

    Lutz was seriously amused at Eaton’s predicament but stepped in anyway.

    “You know, DaimlerChrysler sounds classier to me,” Lutz said.

    The meeting convened. The name came up. Lutz made a speech supporting DaimlerChrysler as the best choice.
Stallkamp supported it. The board accepted it. By a unanimous vote, the directors approved the merger.

    Schrempp was enjoying dinner in a Japanese restaurant in Frankfurt when Valade told him Chrysler’s board had approved the merger.

    “It’s on,” Valade said. “Bob just got on a plane to Germany.”

    Dennis Pawley sat across the table from Steve Yokich in Andiamo restaurant in Warren. If there was one wild card left in the deal, it was Yokich. Pawley had to tread carefully.

    “Steve, we’re going to announce a merger with Daimler-Benz,” Pawley said. “I truly believe this is the best thing that could happen for Chrysler and the UAW.”

    Yokich stared at Pawley. “Ah,” Yokich said. “We get Alabama, huh?”

    Pawley chuckled. In typical Yokich bargaining style, he saw the merger as a means for the UAW to organize the non-union Mercedes-Benz sport-utility plant near Tuscaloosa, Ala.

    Pawley launched into his explanation of why, Yokich should support the deal. Yokich listened, then vented.

    “Oh God, there goes an American car company,” he said. “How can I believe all this?”

    “Because I’m telling you,” Pawley stated. “I have never lied to you. I’m telling you I really, really believe this is good for us, for all of us.”

    The Gulfstream G-4 with Eaton aboard landed in Frankfurt on May 6 at 7 a.m., German time. The European edition of the Wall Street Journal was already on the streets with the headline: “New World Order? Chrysler Might Merge with Daimler-Benz — or Be Taken Over.”

    Eaton went from the airport to Deutsche Bank headquarters, where Schrempp and Hilmar Kopper, the supervisory chairman of the powerful bank and Daimler, were waiting for him. The three of them met for an hour, talking of their future together. “This is,” Kopper said, “an amazing fit.” While they met, the bank’s executives voted to pledge their 22 percent stake in Daimler in support of the deal.

    In Los Angeles, Kirk Kerkorian — Chrysler’s largest shareholder, the billionaire who wanted Chrysler himself just three years earlier — signed his own letter in support of the merger. As the stock climbed throughout the day, the value of his 13.7 percent stake in Chrysler increased by nearly $660 million, to $4.4 billion.