Private Equity – What will Rover’s fate be in a Byer’s market?

AAt press time, BMW had not yet completed its disposal of Rover, an issue which has become a massive political football in the UK and has doubtless caused Department of Trade & Industry secretary Stephen Byers – along with the Longbridge workforce – many a sleepless night.

Alchemy Partners is apparently hoping to tie up the loose ends of its MG Car Company deal (EVCJ April 2000, page 4) before the end of April. However, late in the month, the rustling of German-English and English-German dictionaries should have been faintly audible as parties to the deal and industry observers checked the precise meaning of exclusivity’. Alchemy, which has been in talks with BMW since October, was granted exclusivity. However, Stephen Byers is exerting pressure’ through some unspecified mechanism to persuade BMW to consider a rival bid from the Phoenix consortium, headed by former Rover managing director John Towers.

The exclusivity issue aside, there are two minor problems associated with the Towers/Phoenix bid. Firstly, although it is supported both by the unions and, reportedly, by a consortium of Rover dealerships, it does not have concrete financing in place. Secondly, its proposals are predicated on continuing volume vehicle production and thus saving jobs. A noble aim but – if the vehicles in question are Rovers – probably a doomed one: earlier in April, a union representative interviewed on national radio was actually heard to admit that overcoming consumer resistance to the Rover brand’ would be one of the immediate tasks facing the Phoenix consortium were its bid to succeed.

Alchemy’s Jon Moulton, in characteristic style, has gone on record as saying that the Phoenix bid, which promises to preserve around 7000 of the 9000 Longbridge jobs, “enjoys the benefit of being derived from a pretty great state of ignorance”. Phoenix meanwhile, has questioned the GBP800 million-odd

($1.3 billion) losses ascribed to Rover last year, suggesting that the figure might have been artificially inflated; “In our view, the figure is too low rather than too high”, counters Moulton.

Mouton added another characteristic touch in mid-April after Alchemy withdrew from negotiations with a government-sponsored taskforce involving the DTI, manufacturing unions and local governmental bodies that is examining options for the future of the Longbridge plant. This move was prompted by the conflict of interest posed by the taskforce chairman’s brother’s involvement with the Phoenix consortium bid. Just days later, Alchemy secured an undertaking from the DTI that, if its bid succeeds, it will receive a

GBP30 million government grant – following a letter from Moulton to Stephen Byers demanding equal treatment with Phoenix.

In late April, Alchemy revealed that the MG Car Company would need to retain as many as 6000 jobs at Longbridge rather than the 1000 or so originally suggested, thanks to plans to exploit surplus capacity for contract car assembly.

An early resolution of the issue is clearly in the interest of all parties, save the proportion of the workforce slated for redundancy under either plan: Rover has been selling cars at discounts of more than 10 per cent and, Jon Moulton observes, every day makes it worse for Rover’.

However, if BMW, which is already writing off more than GBP2 billion to rid itself of Rover, were to bow to political pressure and opt for an alternative disposal plan, the exclusivity clause with Alchemy could cost it even dearer.