Problem:
The switch to U.S. GAAP facilitated the merger with Chrysler because the two accounting systems were compatible. As the Daimler Chrysler accounting policies footnote explains, the merger was treated as a pooling of interests. Accounting for a pooling is relatively straightforward, and the separate financial statements of Daimler-Benz and Chrysler merely needed to be combined. Thus, the accounting costs associated with the merger were negligible. Cross-border mergers often involve incompatible accounting systems and the costs of converting one company s GAAP to another s can be significant.
Chrysler has not done well since the merger. The 2000 annual report shows that income before extraordinary gain and changes in accounting principles are [amounts in euros] 2,465 (2000); 5,106 (1999); and 4,949 (1998). Net income amounts show a better pattern 7,894 (2000); 5,746 (1999); 4,820 (1998)] but the 2000 amount includes a 5,179 extraordinary gain. Daimler Chrysler s U.S. share price peaked at over $100 in early 1999, but by early 2001 it had lost half its value.
Your Project: Outline the proprietary, financial and psychological difficulties associated with this merger along with your comments. Incidentally, this Merger is well documented in the press.