The Ongoing Rover/MG/BMW Saga
Written by Kim Tonry
Reprinted by permission from NAMGBR’s “MGB Driver”
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In the last issue of MGB Driver, we included a brief news item on the late-breaking announcement that BMW had announced their intent to sell their British holdings, namely Rover. The ad above is tongue-in-cheek-but it pretty much tells the tale of what came to pass. The announcement came as a surprise in view of BMW’s repeated, vehement assertions that they intended to hold on to Rover and return it to profitability. Even down to the week before the announcement of the sale. But the announcement was not a surprise in light of Rover’s ongoing drain on BMW’s balance sheet. But all did not go as planned...
British venture capital firm Alchemy Partners expected to close the deal announced on March 16 to purchase Rover Cars from BMW by the expiration of their exclusive negotiating period on April 28th. Alchemy planned to rename the company the MG Car Company and downsize considerably to become a small production specialty sports car producer. Their business plan included tantalizing plans-included marketing cars under the MG name in North America again. Plus interesting plans for technology sharing with Lotus were mentioned.
Alchemy’s plans immediately stirred great consternation in the West Midlands where Rover is centered. Birmingham-area politician John Hemmings almost immediately announced he was putting together a rival offer for the company. He found the radical cutbacks in employment envisioned by Alchemy to be unacceptable. Hemmings was soon joined by former Rover Chief Executive John Towers. Towers was running Rover in 1994 when BMW bought the company from British Aerospace until he departed in 1995. Since then he has been running Concentric, a Midlands based engineering company that is a supplier to the auto industry.
The Hemmings/Towers group took the name Phoenix. Symbolic, and ironically one with a strong John Towers/MG connection. Project Phoenix was the early-nineties Rover project that yielded the rebirth of MG as an active sports car brand in 1995 with the introduction of the MGF. On May 10, 2000, their efforts, against all odds, succeeded in buying Rover from BMW.
BMW purchased Rover Cars (whose product lines included Rover passenger cars, Land Rover, the venerable Mini and of course MG) in 1994 from then owner British Aerospace. BMW’s aggressive CEO at the time, Bernd Pischetsrieder, saw acquiring mass-market producer Rover as a way to bring BMW up to the critical mass required to remain a stand alone carmaking entity and not a perpetual takeover target in the continuously consolidating worldwide automotive industry. Pischetsrieder and his sometimes sidekick/sometimes rival Wolfgang Reitzle sought to buy Land Rover, the Mini (which was designed by Pischetsrieder’s Uncle, Alec Issigonis) and MG but not the faltering Rover passenger car division. British Aerospace would not split the company and insisted on all or nothing so BMW ante’d up £800 million (approximately $1.2 billion) to purchase the company and it’s cupboard full of classic British car brands. At the time of the purchase, Rover was several years into the development of the MGF, which BMW looked over and approved for production.
Rover soon ran into substantial problems. Lagging productivity at Rover’s principal plant at Longbridge (see related story in this Driver) was said to be 30% behind BMW’s German and American plants. The strong British Pound and Rover’s continued reliance on primarily British suppliers put them at serious disadvantage in the increasingly global marketplace. By the beginning of this year, BMW was said to be losing £1-2 million a day on the plant.
Rover’s ongoing problems came to a head in February 1999 (see “MG’s Future Revisited” in the March/April 1999 MGB Driver). The BMW Supervisory Board fired Pischetsrieder over Rover’s ongoing problems and Reitzle was out later the same day. (Reitzle soon went to Ford Motor Company as head of the Premier Group-Lincoln, Jaguar, Aston Martin and in ironically, pending closing of the purchase agreement announced in March, Land Rover. Pischetsrieder starts a new job with Volkswagen as head of their Seat division on July 1, 2000).
Rover’s difficulties as a volume passenger car producer have to be viewed from an industry-wide perspective. The car industry as a whole has on the order of 20% overcapacity. Rover’s aging Longbridge plant lags the industry in productivity-due to layout and size compared to modern plants with which it must compete. All this conspires to make Rover cars relatively expensive compared to cheaper imports. BMW itself was still profitable and growing, but the losses of Rover were even greater.
The Sudden Turnaround
Despite the background of these ongoing concerns, after the Executive office clean sweep, new Chairman Joachim Milberg remained committed to turning Rover around. Statements from the Chairman remained upbeat and he continued to be supported by BMW’s majority stockholders, the Quandt family. BMW continued to make soothing statements about the Rover situation at the Detroit and Geneva Car Shows. The announcement on March 16 that BMW was selling Rover came as a shock to the government, the unions and observers of the automotive industry. The next day, the announcement was made that, in a separate transaction, the still profitable Land Rover brand and its Solihull plant were being sold to Ford. The Midlands were plunged into shock over this sudden change of fortune.
The March announcement named Alchemy Partners, a three-year-old venture capital firm, as the proposed buyer of Rover Cars. Alchemy had approached BMW in October 1999 with a proposal they had developed to downsize Rover from a mass-market producer to a small, specialty market producer. BMW’s previous approaches to large-scale producers had elicited no takers so the Alchemy proposal was greeted with considerable interest from BMW’s financial side. Alchemy secured an exclusive negotiating period through April 28th-plenty of time to wrap up a deal they thought. But just as it all seemed wrapped up, negotiations suddenly reached an impasse on the morning of April 28 when Alchemy withdrew issuing a statement that they were unable to come to acceptable terms.
Coming From Behind
The Phoenix Consortium came together in April to make an alternative offer for Rover. Their primary goal was to maintain Rover as a mass-market producer and avoid the massive downsizing and loss of employment proposed by Alchemy. The consortium of Midlands businessmen is headed by John Towers, former head of Rover until 1995. Other principals include Nick Stephenson, former Rover head of design, now with Lola Cars; John Edwards, a prominent Midlands Rover dealer; and Terry Whitmore, the managing director of the car components group Mayflower Panels (Mayflower invested in the development of and makes the bodyshells for the MGF). In the early stages, the consortium was at disadvantage due to Alchemy’s exclusive negotiations. BMW stated they would consider other bids but were unconvinced the Phoenix group had viable financial backing.
The whole situation put the British government on the hotseat. There was considerable outcry at the outset over Trade Secretary Stephen Byers professing that he had no clue that BMW would pull out. There was a marked contrast in how Labour Prime Minister Tony Blair dealt with the situation in comparison with the approach of Labour governments in the Seventies when British Leyland foundered. Blair of course is operating in a different environment of European Community rules on trade, which prohibit government bailouts and subsidies. There is no stomach for nationalization of the type that was undertaken in the Seventies. It didn’t work well then, and there is no reason to think it stands a chance today.
The unions at the Longbridge plant reacted strongly with shock and dismay to BMW’s announcement. A huge demonstration on April 1 revealed strong support for the Rover Company and strong opposition to Alchemy’s proposed massive cutbacks in employment. The unions ended up playing a pivotal role in scuttling the Alchemy bid and threw their support behind the Phoenix group’s efforts. As BMW started to move personnel around in anticipation of the sale, they were served by the four Longbridge unions with a £100 million lawsuit charging improper notification of the workforce of the impending sale. This potential liability was a major factor in the breakdown of the Alchemy talks. The unions allied themselves with the Phoenix group by indemnifying them against the claims peresented in the lawsuit.
The biggest question as the Phoenix bid came in play was-did they have the money? BMW executives were quite skeptical. BMW had agreed to put up £500,000 in repayable credits towards Rover’s ongoing operating costs. But that left Phoenix some £200,000 short of what they needed to be viable. London’s financiers proved unwilling to get involved with the foundering firm. In the end, the money came from the U.S.-First Union Bank of North Carolina fronted the money via its Burdale Financial subsidiary in Britain. With cash commitments in hand, Phoenix was able to undertake due diligence and enter into purchase negotiations with BMW. But the clock was still ticking. BMW indicated they intended to have resolved the Rover one way or the other by their mid-May annual meeting.
Sudden Death Overtime
They wanted the company sold-or they would close it. That was the bottom line of statements from Werner Samann, BMW’s man in charge of Rover. Rover would be closed in three months if it wasn’t sold. And BMW’s timetable left only two weeks to finalize the sale. There had never been a deal of this size accomplished in that kind of timeframe.
But they did it. On May 9th the announcement of the sale was made. Phoenix acquired the Longbridge plant, and the MG, Wolseley, and Heritage brands. All for the nominal sum of £10. The Rover 25 and 45 models will remain in production. The Rover 75 model BMW originally intended to retain will go to Rover and its production will move from the Oxford plant (the old Morris Cowley Plant) to Longbridge. Rover will continue production of the current Mini until BMW introduces their updated version later this year. Rover has options on the powertrain production facilities at Longbridge and on the pressings plant at Swindon.
In a last minute surprise, Rover did not get the Rover brand name. Apparently in response to concerns raised by Ford in conjunction with their purchase of Land Rover, BMW retained the Rover brand name and will license use of the name to Rover.
Looking to an Uncertain Future
Ironically, Rover had it’s best sales month ever in April of this year- 22,000 cars sold. How much of that was due to a patriotic groundswell and how much was due to substantial purchase incentives BMW initiated to move overstocks is open to conjecture.
Towers has stated he does not wish to run the company again. He will probably remain on the board. The Rover workforce will own one-third of the company through a trust being set up by Phoenix.
It appears that Alchemy’s proposal to key on using the MG brand name may end up being used by Phoenix in light of BMW’s retaining the Rover name. Immediate plans include bring out an estate car (station wagon) version of the Rover 75. No specific plans have been revealed yet regarding future MG sports cars and no plans for North American distribution have been specified. Yet.
This report was written by Kim Tonry based on reports from the Financial Times, the BBC, the Sunday Times, the New York Times, the Associated Press, CNN, the Daily Telegraph, the Wall Street Journal and BMW/Rover press Releases. Thanks to David Knowles in England who has been tirelessly seeking out and sorting out the voluminous news stories and press info on the ongoing story.