Re: Daimler and BMW to announce possible partnership at the end of November
And currently, MB seems to earn quite a lot more money than BMW. So I wouldn't fear a takeover by BMW. Even if you look at Porsche, it's quite particular and unlikely to happen with Daimler and BMW.
BTW for me the danger is not in BMW, but in private-equity funds, possibly driven by Russia, Middle- or Far-East countries and so. Private equity funds such as Cerberus already prooved they had the guts and means to buy a carmaker.
There were also rumours that Toyota would be interested in Daimler... Daimler has no other protection than a high share price, so they are quite vulnerable, but it does not mean that they will be bought, the action has to make sense. It's not really about proud or anything, such an enormous takeover has to bring advantages to the table.
For BMW to buy Daimler would be completely ridiculous. For Daimler to buy BMW would be completely ridiculous.
For a Chinese private-equity fund to buy Daimler would open them the world of automotive finest engineering, but be sure that neither the Germans nor the EU would let them do easily. Then, and only then, could we imagine a takeover from Daimler by BMW, to "protect" Daimler.
Mercedes is much further down the road than BMW in terms of cost cutting measures and parts commonality/sharing than BMW. The difference in the profit margin between the two marques can be attributed to these two factors. BMW is playing catch up to Mercedes and this task is made even tougher because the global economy is slowing.
As for the threat posed by Private Equity funds. Highly unlikely at this moment and for the forseeable future simply because P/E firms cannot arrange the jumbo financing packages to do a >US$10 billion deal. Let alone Daimler or BMW. The days of easy credit are gone.
Even the top-tier Private Equity funds such as Blackstone, KKR, and Carlyle are having their hands full managing their existing portfolio companies. I have excluded other prominent P/E funds such as Permira, CVC, Clayton Dubilier & Rice, Providence Equity Partners, Texas Pacific Group, Thomas Lee, Apollo, Silver Lake because they are focused on other industrial sectors or in the case of Silver Lake and Providence Equity Partners, they are focused or the technology, media, telecommunications businesses.
Most of the purchases they made during the private equity boom between 2006 to the middle of 2007 are proving troublesome and some have already filed for bankruptcy in Europe or chapter 11 restructuring in the US (eg Damovo, Linens 'n' Things). The frothy prices paid for these assets were based on easy credit, blue-sky valuations, and fierce competition among P/E firms. Without going into the technicalities of the private equity business, many P/E firms have had problems getting the financing in place to complete the purchases made in 2007. There were and still are cases pending where P/E firms are suing the banks pledged to provide finance but are backing out or sellers suing P/E firms for failure to complete the transaction. One relevant case is KKR's purchase of Harman Corporation. Harman (Harman & Kardon, Becker) is the company that manufactures the audio and satnav systems you see in most Mercedes, BMW, Porsche, and Ferrari. KKR walked refused to complete the purchase because Harman had tripped a MAC (material adverse change) clause concerning Harman's R&D expenditure. They went to court briefly and settled out of court. KKR ended up buying US$350 million of preferred stock in Harman. Harman's shares have dropped more than 50% since.
Cerberus was the only P/E firm that owned a car company (Chrysler). The business is not working out and is bleeding cash daily. Steve Feinberg (Senior Partner of Cerberus) brought Bob Nardelli and Jim Press (the ex-president of Toyota) to steady the ship. It will be years before they see daylight with this deal (if at all). The car business is essentially a long-cycle business meaning that cycles revolve around the life cycle of models and mistakes cannot be undone easily. On top of that you have the economic cycle to deal with.......................................
Cerberus also bought General Motors' financing auto and mortgage business called GMAC. You don't need me to tell you this is blowing up in their face. But it did look like a great deal before the US housing market blew up.
The Sovereign Wealth Funds (SWF) won't buy a brand such as Daimler or BMW because they are not strategic and these SWF's have no experience in running a car company. The Kuwait investment corporation does have a big stake in Daimler and they have had it for decades. But they are silent shareholders.
Cross shareholding to protect one another among the German marques is possible but not at this time. VW approached Daimler four years ago to take a stake in VW to protect VW from unwanted takeover attempts. Then Porsche swooped in to buy VW and we all know what happened.
Toyota does not need Daimler, BMW, or anybody else. They are doing fine and Lexus is doing great in North America. Europe is still a work in progress for Lexus though.
The co-operation between BMW and Mercedes are purely driven by financial considerations and survival. The scope of the co-operation is quite limited at this stage. Also car companies do multilateral deals and not limited to one partner only. BMW has a deal with Fiat and an engine deal with Peugeot also (I think).
