Posted by: David Kiley on November 6, 2008
I was searching for something via Google and came across this passage from a 1954 edition of Time Magazine.
Given all the “rationale” surrounding a GM-Chrysler merger, it is worth looking at how far management thinking has come since 1954. Perhaps substitute today’s names for the ones in the story.
Time Magazine: “For weeks the auto industry has been alive with rumors of a merger between Studebaker and Packard so that the two independents could compete better against the Big Three. This week directors of the two companies scheduled a meeting in Manhattan to close the deal, tie up a few loose ends, and pick a boss for their hopeful new company.
In effect, Packard will take over Studebaker. Packard President James J. Nance, 53, who has put new life into Packard, will take over as president of the new company. Studebaker’s Board Chairman Paul Hoffman will become board chairman of Studebaker-Packard, and Studebaker’s President Harold S. Vance chairman of the executive committee.
Champion & Limousine. If the merger goes through, it will be the third for the auto industry in a little more than a year (the others: Kaiser-Willys, Nash-Hud-son). But it is a necessary step and a shrewd move for both. The two independents have steadily lost ground in 1954’s red-hot auto race. Packard sales are down 53%, Studebaker’s 55%; both lost money in the first quarter—$6,000,000 for Studebaker and $380,000 for Packard. By joining forces, they can put together a sales organization of some 3,900 dealers across the U.S., and offer customers a complete line of cars from the cheapest Studebaker Champion ($1,700) to the most luxurious Packard Limousine ($7,500).
There are other benefits. Packard has been long on engineering, short on the kind of racy-looking design that helps sell cars. Studebaker, with its long, low cars, has been a style pacesetter. The combined company should also be able to cut production costs.
Book v. Market. The merger will involve a straight stock transfer. Packard shareholders are expected to get one share in the new company for every five they own and Studebaker stockholders to get 12 shares in the combined company for every one of Studebaker stock. The exchange deal was based on the book value of the two stocks. Though Packard’s total assets are only slightly less than Studebaker’s, the per-share book value of its stock is far less because it has 14,491,000 shares compared to only 2,361,000 for Studebaker. Thus one share of Studebaker (valued at $42.81) equals 7½ shares of Packard (valued at $5.70 a share). On the New York Stock Exchange the spread was not as great; Studebaker was selling for $19 and Packard for $4, a ratio of only about five to one. On this basis, some Packard stockholders may complain that they are getting shortchanged, especially since this exchange would leave Studebaker shareholders with 55% of the new company. But they are not likely to hold up the merger, since neither company can do better alone.
To begin with, Packard and Studebaker will have about 3% of the total auto mar ket. The big question is whether the new company will be big enough to compete successfully against the Big Three. Roaring along at full speed, the giants have pulled even farther ahead of the independ ents this year. General Motors now has 48% of the market, Ford 31%, Chrysler 15%—a total of 94%. Around Detroit last week, the talk is of still another merger eventually. This time auto experts believe it will be between Studebaker-Packard and the newly formed American Motors (Nash and Hudson).