COMMENTARY: A GIANT LEAP FOR THE NEW EUROPE The merger of Daimler Benz and Chrysler Corp. will clearly rock the global auto industry. But the creation of this new powerhouse is more than an industrial megadeal. It's perhaps the first sign that the forces of globalization have succeeded in reshaping Europe Inc. Companies such as Daimler Benz now seem to be strong and confident enough to deal on an equal footing with their American counterparts. There will be plenty more such deals to come. Hundreds of billions of dollars are now floating around the global economy. At the same time, on both sides of the Atlantic, management cultures, styles of business, and corporate governance standards have largely converged. Now that investors feel equally confident holding shares of Daimler and Chrysler, or SAP and Microsoft Corp., a new class of Euro-American corporation may spring on the scene. All this is happening at a time when corporate Japan is floundering and the Asian tigers are struggling to recover from financial collapse. It seems to portend a shift in global economic power. The biggest change is the new gravitas that Europe is taking on as a result of years of restructuring and the launch of its new currency, the euro. The European Monetary Union will expand Europe's financial markets, giving companies the wherewithal to prowl for global acquisitions. Already, by creating a larger home market, monetary union is forcing a merger boom that is toughening Europe's corporate players through consolidation. More will take a cue from Daimler and venture across the Atlantic. Expect European insurance companies such as Allianz or technology groups such as Ericsson, for example, to weigh mergers in the U.S. Indeed, Europe seems set to take a bigger role in global consolidation of key industries. Analysts say that the massive merger between Swiss Bank Corp. and Union Bank of Switzerland last year helped precipitate such financial deals in the U.S. as the recent Citibank-Travelers linkup. With the Daimler-Chrysler deal, says Frank Beelitz, who heads Lehman Brothers Inc.'s German operations, ''we've got a $35 billion deal going, and everyone is wondering how soon there will be another one for $50 billion.'' European financial markets are driving the action. Like the U.S. market, they are booming with rich twentysomething price-earnings ratios. Fat share prices give European companies a lot more clout in the global takeover game. And in some cases, European and American companies are near lookalikes from a shareholder perspective. Led by companies such as Daimler Benz and Swiss Bank Corp., Corporate Europe is now rushing to detailed, U.S.-style earnings reports. Daimler Benz has completely adopted generally accepted U.S. accounting standards, and its shares can trade in the U.S. as depositary receipts. Fast approaching are the days when a U.S. investor will not have to worry that a European partner is cooking its books. Spurred by demanding shareholders, the new class of European CEOs is tougher, more profit-oriented, and eager to expand. Daimler CEO Jurgen Schrempp is a ferocious cost-cutter and a demanding manager who has set a goal for all the company's units to earn 12% on capital. By teaming up with Chrysler, America's most efficient auto maker, he's likely to a set a new standard for other European companies. Already, groups from Germany's Siemens to France's Compagnie Generales des Eaux have also been slashing costs in hopes of earning investors' favor. They're also likely to look to U.S. deals to bring new growth and further opportunities for consolidation. One irony of the Daimler deal, of course, is that it isn't a Japanese company that made overtures to Chrysler. Indeed, no one would have predicted this deal five years ago, when Mercedes was stumbling in the U.S. and Toyota Motor Corp. was conquering the world. Now, as the links between American and European companies multiply, even global giants such as Toyota will be on the defensive. Japan and the rest of Asia are in crisis now at least partly because they have avoided opening their companies to scrutiny and are taking painful restructuring steps that the best of Corporate Europe has achieved. Only a few years ago, the top brass in Daimler's Stuttgart headquarters believed that buying a rival was a sign of weakness and an admission that they couldn't do better on their own. How things have changed in the Old World. By Thane Peterson Return to main story

Updated May 7, 1998 by bwwebmaster
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