The BMC>MG Rover Story : Part Nine – Like a phoenix from the flames
In January 1999 BMW announced that Walter Hasselkus’ replacement as chief executive of Rover was Professor Werner Sämann, a man regarded within the industry as a bit of a ‘tough guy’. He could not have joined Rover at a worse time – its future was far from certain, and it was an inevitability that there would be heavy job losses within the UK, in order to go some way towards guaranteeing that it had a future.
In fact, he attacked this brief in an uncompromising way, describing the task ahead to Autocar magazine: ‘My task in the next two years is straightforward. We must significantly reduce our cost basis and we must become faster on our feet, more flexible. We have to do all the right things more quickly and more efficiently.’
Certainly he made his presence felt very quickly indeed – within days of his appointment, it was reported that dozens of executives were flown over to Gaydon from Munich in order to stamp the German company’s modus operandi upon their UK division. These teams were referred as ‘purge teams’ internally, and their brief was described perfectly by their job title. Needless to say, there was soon an exodus of British executives from Rover, as their German counterparts also made their presence felt. It was an unpleasant time for all, and any vestigial trace of autonomy that the British arm of BMW may have remained at the time was well and truly swept away.
The continuing strength of the Pound also continued to hurt BMW-Rover, and Sämann made it very clear that he mirrored the views of his predecessor, and his boss in Munich: ‘Early entry of the UK into the Euro would benefit all exporters’.
The sell-off plan takes shape
Back in Munich and following the ‘Night of the long knives’, Joachim Milberg soon put together a strategy for Rover’s future. In many ways, it continued Pischetsrieder’s thinking, but perhaps on a slightly less grand scale. Informed speculation by Car magazine at the time indicated that Milberg’s plan centred on the R30 sharing its front wheel drive platform with a new front-wheel-drive BMW 2-series, both of which would be built at Longbridge.
The R30, however, would not be badged as a Rover (although an insider close to the project admitted that the car was referred to as the Rover 55 pretty late on in the project), but would come in three forms, one badged as a Land Rover, one as a MINI-Maxi (how ironic) and one as an MG or Mini-Sprite. All three would be sold as niche models, and would hopefully be able to command a high enough premium to enable production volumes of 400,000 per annum to be profitable.
So on that basis, the R30 would go ahead at Longbridge, but it hinged on the British government approving the £200 million aid package that BMW had requested from them. This £200m may only have represented a drop in the ocean of the £1.7bn investment that BMW had committed to Rover, but its political significance to BMW could never have been underestimated.
Further improvements in efficiency at Longbridge also were vital if the R30 was to go ahead – and Sämann would be the man to deliver these.
When, a month after his appointment, Milberg approached Stephen Byers at the department of trade and industry, he re-affirmed his wish to see the government support his plan for the R30. If the government were less than forthcoming, BMW stated that they would be able to set-up in Hungary at a green field site, without much of the baggage that Longbridge was saddled with. He was also quite clear that without R30, Longbridge would close – and that would have devastating consequences for the West Midlands.
Byers had already been well briefed by Rover executives and had seen what the company’s investment would mean for Longbridge, so agreed in principle to sanctioning the aid, but he would need to run it by the treasury. This is where Byers came unstuck: the treasury led by Gordon Brown did not want to release such a large amount of money (for fear of being accused of going back the profligate ways of ‘old Labour’). And so, when Milberg came away from his discussion with Byers, he assumed he had an agreement in principle – how wrong he was.
Milberg was preparing himself to attend the next meeting of the supervisory board on the 18th March, to discuss the implications of a c. £180m package of Regional State Aid. When the Byers offer became known to BMW, the disappointment was palpable, and when Joachim Milberg sat down in front of the Supervisory Board, it was to discuss the reality of a £118 million offer. That was bad enough, but the fact that Rover actually posted a £647m loss during 1998 was beginning to break the resolve of the major shareholders – there was now a real risk that Rover would bring down BMW with it. One thing was for sure – BMW were now making very public noises about being disappointed with the British Government’s attitude to the RSA it had agreed to give to BMW.
Again, the company made it quite clear that the future of Longbridge was far from secure, and if necessary, the company could move the operation to Hungary. Neither Byers nor BMW truly believed this was the case, especially given the fact that BMW were still hoping to get the R30 onto the market by the end of 2002, but it was still a card that BMW felt that it had to play in order to get Downing Street to sit up and notice.
It was at this point in the proceedings that Downing Street did get involved, and the original offer was upped to £129 million, which would then be topped up by the Birmingham chamber of commerce to total £152m. It was not enough; and even though outwardly, BMW were still very committed to their plan to introduce the R30, the feeling at the very top of the company was that an exit plan would shortly be required.
In August of 1999, the company’s wishes would be granted, and the source of the exit was a most unlikely one.
Enter Alchemy Partners
Jon Moulton and Eric Walters of the Venture capital company known as Alchemy were discussing what future projects they could turn their attentions to. As a venture capital company, Alchemy’s raison d’etre was to take control of failing companies, and get them into a suitable shape to either be floated as a going concern, or was more often the case, carved into pieces and the components sold off to interested parties.
They had enjoyed a great deal of success in the past, most notably turning around the FADS chain of DIY stores – but being a bright, young and ambitious company (Alchemy Partners LLP were formed in 1997), the desire of the management was to top this achievement. Scouting round for ideas, both men settled on the notion that given Rover’s continuing troubles and BMW’s share price wobbles, perhaps the British car company could be prised from BMW’s hands at a favourable rate.
Moulton and Eric Walters both agreed that it was a most audacious idea – especially as they had no current ties with the motor industry, and did not have the financial muscle behind them to run a car company. However, the thought did not go away, and in September, Moulton put out a speculative approach to BMW – the idea being a meeting to discuss what plans the company had for Rover and how Alchemy could possibly ease the troubled waters BMW were currently negotiating. Both Moulton and Walters felt that it was unlikely that they would get a response, so when it did come from BMW, stating that they would like to meet; both men were delighted and not a little surprised.
When the met with Hagen Luderitz of BMW, Moulton and pointed out that BMW no longer needed Rover at all; the brand was strong enough to survive a smaller model being added to the range. Not only that, but now BMW had the X5 to sell, it could be argued that they also no longer needed Land Rover.
BMW, they pointed out, had already invested billions in Rover, and the company seemed as far from recovery as it had in the darkest days of 1997/1998. In fact, Alchemy’s own estimates were that Rover would probably make a comparable loss to the disastrous one made in 1998 – and that being the case, there could be the very real danger that Rover’s woes would also bring down BMW. Moulton pulled no punches: BMW should shed Rover as quickly as possible.
This initial meeting was completed and Moulton walked away from it with a real sense that they could just pull off a coup…
Days later, an invite to further discussion was forthcoming from BMW, and it soon became very clear that although the company was still making very public noises about supporting Rover and bringing the R30 into production, there was conviction within BMW that they dearly wished that someone would take Rover away. Certainly, there was no chance that any major player would relieve BMW of Rover without the quid pro quo arrangement of receiving BMW stock as well. So as the autumn months of 1999 passed, it was beginning to look like BMW’s only option of a clean break without closure was Alchemy.
Moving towards Christmas, the BMW/Alchemy talks gathered pace, and a business plan was beginning to take shape: Alchemy would purchase the Longbridge factory and the rights to the old Mini, Rover 25, 45, 75 and MGF. Production of the existing cars would remain in place until new model plans could be brought into fruition. BMW would keep Cowley and the new MINI and the Hams Hall factory – and as suggested by Alchemy, Land Rover should be sold in order to recover some of the investment ploughed into Longbridge and Cowley over the preceding six years.
There was still the question of where the Rover 75 would be produced, because although the new MINI could be moved from Longbridge, as construction of its assembly line was not yet completed, the Rover 75 was well and truly underway at Cowley. Plans were still quite fluid at this time, and much of Rover’s financial performance was masked by BMW’s reluctance to release figures. This made accurate planning by Alchemy almost impossible, but it did provide just enough information for a firm plan to be laid out by the venture capitalists.
Alchemy would instigate a round of redundancies at Longbridge, trimming down the complement in readiness for their new model plans. Initially, Alchemy’s plans were to drop the ‘Rover’ brand altogether, and as quickly as prudent, trim production volumes, whilst new sports cars could be developed. Alchemy’s plans for MG were as a 50,000 per annum manufacturer of specialist cars, comprising of sports cars such as the MGF and sporting saloons, possibly an MG-badged Rover 75. Either way it spelled serious cutbacks at Longbridge, in order to get the company into a fit state for either floatation on the stock exchange, or sale to a competitor.
BMW would gain much from the deal – the fate of Longbridge would no longer be their direct concern, in effect, Alchemy were being paid to take Rover away.
As late as the Detroit Motor show in 2000, BMW executives outwardly remained resolute that Rover was safe with them. As it was, news of the proposed Alchemy buy-out stayed exclusively within the highest echelons of BMW – the risk of a leak was to be avoided at all costs.
However, the implications of any poor financial figures produced by Rover would become apparent in March, when they were due to be published, and so, BMW’s determination to construct a workable deal with Alchemy increased. In dealings with Stephen Byers at the Department of trade and Industry, no direct hint was given of Rover’s impending fate – although Sämann subsequently stated that he had not pulled any punches regarding the dire straits that Rover were in by that time.
Negotiations regarding the RSA continued, and as far as the British Government were concerned it was still business as usual in Munich and Warwickshire. In truth, BMW must have been hedging their bets against the collapse of the Alchemy plan – but in the minds of the Germans, the allegiance with Alchemy was now BMW’s only hope of a relatively painless solution to the Rover ‘problem’. And it was a pressing problem for BMW: the next meeting of the company’s supervisory board was due for the end of March, and as there was no real hope of an upturn in Rover’s fortunes, the shareholders would be baying for blood.
With this in mind, BMW met up with Alchemy to rapidly establish their plans, and by the 15th March, Both companies had hammered out a deal – and after much blood, sweat and tears was expended by BMW and Alchemy, a position of intent had been reached by both. Although the partnership was not sealed yet, Alchemy were given a period of ‘due diligence’ – some six weeks where they would have exclusive access to Rover’s accounts in order to lay-out the final details of the deal. In reality, Alchemy now had to assemble the details of the Rover deal – and package it so that BMW would be completely happy that it would be obtaining complete severance from Rover.
BMW was the first to go public on 16 March 2000 – and the World’s media were literally stunned at the announcement the company were intending to sell Rover to the Alchemy Partnership. Moulton then faced the press the following morning, and issued a statement over Alchemy’s intended role in Rover’s future: BMW would be pulling out of Longbridge, selling Land Rover (probably to Ford) and Alchemy Partners would retain the rights to Rover’s existing range of cars. From Rover, BMW would retain the Oxford factory and the new MINI – current production of the Rover 75 would be moved to Longbridge, thereby ensuring that Alchemy’s entire operation would be centred in Longbridge.
In a brief statement to the press, Alchemy laid out their plans for Longbridge: ‘The new company will focus on developing a state of the art British built product range worthy of the sporting heritage of the MG name. The product will use the latest developments in composites and aluminium body technology and will appeal to the motoring enthusiast well versed in the history of the marque going back to the former Morris Garages which started modifying standard Morris Cowleys in 1922.’
In short, Alchemy would ensure that MG would be brought to the fore, renaming the Rover Group, the MG Car Company – and sports cars would be the order of the day.
The effect on the morale of Rover’s workers, their families and those of the company’s suppliers who had already been through so much uncertainty in recent years, was to be expected: it went through the floor. Obviously the plan involved redundancies – as Alchemy made it quite clear that production volume would be drastically cut. The comment made by the Venture Capitalists that, ‘it is expected that the MG Car Company will employ a significant workforce and will rapidly develop into a selfstanding highly viable British car manufacturer’, offered little comfort to those who had been plunged into uncertainty yet again.
As one can imagine, the announcement had a shocking effect on the morale of the workforce. One engineer working at Gaydon at the time relates: ‘I vividly remember the few weeks during which BMW broke up the group. It was understandably an unsettling time during which rumour was rife – someone even sent a fake memo around that Qualcast were to buy Gaydon and turn it into a lawnmower test centre…’ A sense of blind panic, in other words, as the entire complement of staff at Longbridge, Gaydon and Solihull did not know whether they had a future or not.
The balloon goes up… and Phoenix is born
17 March 2000
The mood of the entire West Midlands plunged into despondency, but some local businessmen and politicians decided at that point that there would be little option but to prepare a counterbid… Liberal Democrat councillor John Hemming was one such person.
The reaction at Westminster was to set-up a task force to investigate what options were left to Rover – Byers and the department of trade and industry were apparently completely surprised – shocked more like – by the announcement. BMW would later claim that they had kept Whitehall abreast of the Rover situation, but it was obvious that the Munich-London relationship had been cool for some time. The result was that the British Government were thrown into panic by the announcement, and representatives from the DTI visited Longbridge the next day, to see what assistance the government could offer Rover. In truth, there was little they could do by this stage – the damage had already been done.
Most significantly, in the Midlands, the beginnings of a counter bid to Alchemy began to take place on that very day: one of three key players involved in the Phoenix buy-out of Rover was John Towers, who at the time was a member of the Training and Enterprise Council. Basically, the DTI set-up a task-force in order to see how Rover could be saved, and – later – invited Towers to head this up. In the Midlands, John Hemming would be responsible for rallying local businessmen and politicians into accepting that there could be an alternative to Alchemy. Rover dealer Principal, John Edwards, would also become involved in the Phoenix consortium once discussions were well under way. According to John Hemming, ‘At the early stages, John Towers was of the view that it was not possible to put together an alternate bid as too much funding would be required. This had been considered previously, but discounted.’
Towers was later to become the focal point of the bid – a face for the consortium, and no doubt, this was because of his extensive past experience within Rover (who could forget his public exit from Rover, as shown on the BBC documentary, When Rover met BMW?) Like most observers, Towers had been appalled by BMW’s announcement on the 16 March and soon began to make his own enquiries as to whether anything could be done to counter Alchemy. ‘Phone calls were made, contacts re-established, and by the following weekend, Towers had drawn up a tentative plan of action – an alternative to the Alchemy plan. He faxed the proposal, titled ‘Project Phoenix’ to Richard Burden, the MP for Longbridge…
18-19 March 2000
At the same time, other movers and shakers were also making themselves heard: On Saturday 18th March John Hemming discussed with Liz Lynne, the MEP for the West Midlands (at the Plymouth Liberal Democrats Conference) and ex-Lord Mayor Councillor Paul Tilsley (a member of Advantage West Midlands Board) the issue of the probable effective closure of Longbridge. It was seen as particularly bad for the West Midlands.
It was felt that there would be no attempt by a major player to take over Rover. The following day, John Hemming returned early to Birmingham to attend “It’s your shout” – a central TV programme. Listening to Richard Burden and Julie Kirkbride blaming each other he concluded that we need to try to solve the problem rather than assume there was no solution and that a bid is required. He decided to attempt to put such a bid together. He spoke to Richard Burden after the programme who suggested he spoke to Alex Stevenson who chaired the Regional Development Agency. Certainly, publicity mattered immensely, and it was Hemming that used the media very effectively in getting interested parties to believe that Rover could be saved…
20 March 2000
The following Monday, Towers’ plan was accepted by the DTI as having potential, and he was therefore chosen to head the task force, whose role was to try and put the plan into action. Where Towers and Alchemy fundamentally disagreed was that Towers held the belief that Rover as a marque still had value, and that the company should remain in ‘volume’ production. In fact, the Towers plan was initially greeted with much enthusiasm within the DTI, because Byers could see that apart from anything else, the plan would result in fewer redundancies at Longbridge. Towers’ cause was helped somewhat by the news that a group of twenty Rover dealers, headed by dealer Principal John Edwards, was assembling finances to assist in any potential management buy-out.
At the same time, the John Hemming plan to get public opinion behind a counterbid went into overdrive. He discussed the issue with Alex Stevenson and put a declaration of interest in at Council House. They concluded that nothing to be lost in launching alternate consortium that night. John Hemming, therefore, announced the proposal to the Birmingham Post. It was clear that public pressure would be important in changing BMWs mind. Hemming instructed Lee Crowder to act as the solicitors. It is important to note that at this time, Alex Stevenson (Nick Stevenson’s brother) and Richard Burden were both unaware of any alternative bid proposals.
21 March 2000
Thanks to the announcement in the Birmingham Post, Hemming became a focal point for the campaign at the time. Another insider, who was not directly involved with the company by this time stated, ‘…we all followed, heart in mouth, each day at the time.’ A large number of people contacted Hemming, including John Edwards, Dominic King (of Albert E Sharp – who were the financial advisers) and Brian Parker to express their interest in saving Rover. He also spoke to Digby Jones of the CBI who was aware that people were all looking for someone else to establish a consortium…
The dealer Principals’ were also extremely unhappy: they had decided to sue BMW for damages; caused by the financial investment that they had to plough into their dealerships in anticipation of the increased sales that the new MINI promised to bring. With the collapse of the BMW-Rover partnership, this investment had gone to waste and they wanted compensation. John Towers later saw that this situation could be used to the consortium’s advantage…
22 March 2000
John Hemming met with John Edwards and a member of the Rover staff. They discussed how MG Rover could be taken forwards and worked out the plan for BMW to retain the Mini whilst moving the R75 from Oxford. Towers may have wanted to keep MINI and would later try and prise it out of BMW’s clutches, but by losing it, the group concluded, Rover could be extracted from BMW very cheaply indeed.
23 March 2000
John Hemming managed to contact Tony Woodley and advised that the way forwards was to put in some form of written offer to BMW as soon as possible. John Hemming, therefore, faxed an expression of interest to BMW at that time. In the fax, he explained that they would put in a large sum of money into the deal. Hemming also discussed matters with Carl Chinn, and also spoke with John Towers who indicated that there was a possibility with the brand, but that at that stage he did not want to get involved with the action on Hemming’s side of the fence, as he was tied in with the DTI…
According to Hemming, this day was pivotal in the affair, because it made it clear that the funding for taking Rover forwards would be available from BMW and there was no need for any substantial investment from venture capitalists.
Trade and industry secretary, Stephen Byers met with BMW’s top management in Munich in order to discuss the implications of its sale of the Rover Group. Chris Woodwark, former chief executive of Rolls-Royce Motors, is named by Alchemy as chief executive of its planned MG Car Company.
24 March 2000
BMW stated that it had not yet received the faxed expression of interest from Hemming’s office; Just to be sure, it was faxed again to two other numbers. John Hemming met up with a potential Chief Executive who had been identified by Tony Woodley and developed proposals for sale and leaseback of land (a plan later adopted by MG Rover). Dr Luderitz of BMW phoned Hemming’s office and offered discussion. The challenge that faced any potential rival consortium, was that the contract with Alchemy meant that BMW could not provide any information to any other bidders until such as stage as a formal offer had been made. To that extent BMW kept saying “make a formal offer” and refused to provide information.
Meanwhile, at the DTI, Towers met with was Nick Stephenson, an ex-Perkins man like himself, that had managerial and then directorial experience within Rover and its antecedents since 1979. As a non-executive director of Lola, Stephenson, was basically, another interested party in Rover (or at least components of it) – so it made sense for Towers to try and set up a dialogue between Stephenson and the dealers, in order to add manufacturing expertise into the ranks of the Phoenix consortium.
Nick Stephenson’s involvement in the story actually went back to the previous year, when mindful of the fact that BMW and Rover appeared to be heading for the rocks, he proposed that Lola and a Mayflower team up to try buy MG from BMW. At the time, he received a dusty response from Munich, but did not give up on the idea – so, when BMW announced that they were selling Rover to Alchemy, they once again made tentative enquiries. However, the DTI asked Stephenson to back off, so as not to jeopardise the Alchemy deal – and in the interests of Rover’s well being, he did just that.
However, when it became clear that the Phoenix plan would cost Rover less jobs than that of Alchemy, the DTI warmed to Nick Stephenson and encouraged him to throw his towel back into the ring, by backing the dealers. Stephenson accepted the offer, and the Phoenix consortium started to look more serious…
25 March 2000
Commons Trade and Industry Select Committee started its own inquiry into the Rover sale.
27 March 2000
John Hemming wrote up an initial offer offer at 6:00AM, and this was faxed untranslated to Joachim Milberg. This was the first offer, which stated that any payment for Rover is likely to be a nominal amount (Alchemy spoke in terms of the deal costing them £50m – still nominal in industry terms). Dr Luderitz phoned back later that day, and continued to refuse Hemming’s consortium access to Rover accounts, as there was still the period of exclusivity between Alchemy and BMW to consider. According to Hemming, “He said look at the published accounts.” Later than day, John Hemming arranged a meeting with Werner Sämann.
John Towers had his first meeting with Sämann…
28 March 2000
John Hemming acquired the published accounts of Rover, and then cancelled his planned meeting with Sämann (at Tony Woodley’s suggestion). He then re-instated the meeting with Sämann, then who then cancelled.
29 March 2000
A key day in the Phoenix affair: John Edwards confirmed that he had also been trying to establish a consortium, but had not managed to do so. John Hemming decided that the only way forwards was to bring together all sides who wanted to counter-bid Alchemy. The reasoning behind this decision was was simple: strength in numbers. A meeting was arranged for the following Friday; the counter-bid was gaining further momentum…
30 March 2000
The key day on which the trades unionists obtained the agreement of BMW to ensure that the alternate bid had the same funding as that which was available for Alchemy.
31 March 2000
The pivotal meeting at AE Sharp, which had John Towers, John Edwards, Peter Beale, Stephen Gilmore, Andrew Sparrow, Mike Whitby, Dom King, Jonathan Bartlett, Brian Parker and Carl Chinn meet and discuss tactics. The key to this meeting, which was chaired by John Hemming, was that it brought together the key stakeholders: Unions, Engineers, Dealers and Community and at the same time funding had been identified (from BMW) that enabled a successful bid. This is the date upon which according to MG Rover’s account, the Phoenix Consortium was formed. Certainly, it is the first time all parties meet, but as can be seen, the counter-bid had been in preparation for some time before this.
John Towers was very concerned about the bid’s positive publicity; he was upset that John Hemming had told Albert Bore (the Council Leader) that John Towers thought there might be a solution earlier that day. It was agreed that John Hemming, Mike Whitby, Brian Parker and Carl Chinn would not be involved in the detailed business negotiations, but would come together at a later stage to work out how things went in the future. John Hemming would front the Public Relations for the Consortium – given his work on the deal so far, Hemming was the best candidate for this role.
John Hemming instructed Albert E Sharp to work up a bid and left the meeting with Carl Chinn, Mike Whitby and Brian Parker. This group went to the pub and left the detailed discussions…
…the results of which are firmed-up, and the counter-bid was now tagged with the name “Project Phoenix”, which Towers had come up with on the 17th. The bid’s backers became known as the Phoenix Consortium.
6 April 2000
Towers met up with Milberg and Sämann of BMW in order to lay out the Phoenix counter bid to Alchemy’s. The terms of the deal would include handing over MINI to Phoenix, but also the rights to the Triumph and Austin-Healey marques, as well as MG and Rover. Like Alchemy, Phoenix would take Longbridge off BMW’s hands – and they could offer a future model plan based on ‘volume’ production with help from Mayflower and Lola (beyond that, Towers was confident that there were ‘many opportunities’ for future collaborative projects out there).
He also urged the company to open their accounts to them, so they knew exactly what state Rover’s finances were actually in. On all three counts, BMW rejected Towers – they would not hand over the MINI under any circumstance, nor would they hand over any British marques. They were also tied to the exclusive six week ‘due diligence’ period with Alchemy, so basically if Towers wanted to assemble a rival bid, he would have to do it without inside financial information.
That evening Towers resigned from the DTI to officially head-up the Phoenix Consortium. The members of Phoenix continued to work on their battle plan, but did find difficulty in producing accurate financial forecasts, due to the lack of information from BMW. Again, Towers asked BMW to assist, but was turned down flat.
10 April 2000
Trying to address these concerns, John Hemming suggested to John Towers, that Brian Parker should be involved as he would be able to arrange for working capital finance from one of the banks.
Hemming then held discussions with Dom King, Albert Bore, Mike Lyons (Chief Executive Birmingham City Council) in order to discuss their concerns about the potential reference to EU of the sale and leaseback of Rover’s land. Hemming argued that Phoenix should get the government to pay any money and argue out the matter with the EU later. The group also felt that there were two other ongoing problems, which were holding back Phoenix’s progress:
- Leaks from the DTI
- Potential reference to EU General sentiment that civil servants in DTI are not helpful.
Alchemy is defeated
However, while all this had been going on, Alchemy financial experts had been picking over every minute detail of Rover’s finances, and they did not particularly like what they saw: there were contractual matters with the suppliers, dealers and workforce that were really quite complex. Without serious financial backing from BMW, the deal could leave Alchemy open to the risk of legal or industrial action, or possibly worse. Their period of ‘due diligence’ with BMW was up on the 28th April, and as that deadline got closer, the magnitude of Alchemy’s task became more evident.
On the 27th Moulton and Walters met up with BMW’s team of solicitors in order to discuss their misgivings: these were basically tied to the possibilities of industrial and legal action, as a consequence of BMW’s failure to give the Unions an acceptable advanced warning of their impending plans to dispose of Rover. Also, there was the fact that BMW would only guarantee to pay the statutory minimum redundancy payments to the 4000 employees that Alchemy planned to lay-off, whereas Moulton knew that in order to avert serious industrial action, the offer would need to be rather higher.
Because of this, Moulton stated that Alchemy would need an extra £100million or so on top of the original £500million payment tabled to BMW in order to take Rover off their hands. In itself, this was not enough to scupper the Alchemy-BMW deal, but when BMW then tabled that Alchemy would have to guarantee £1billion of loans to the Rover distribution network; the potential financial burden of Rover would prove too much for Alchemy.
Why had BMW asked for this condition? As negotiations between Alchemy and BMW progressed, the spectre of a huge legal action against the German company was too painful to bear. Therefore, if Alchemy guaranteed such a sum, they could be responsible for issuing settlement against any potential compensation claims; the matter would have ceased to be BMW’s problem. Moulton could not accept this condition – Alchemy simply could not afford to do so – and after trying and failing to persuade Hagen Luderitz directly to drop this condition, Moulton and Alchemy walked away. The deal was off. Such was the animosity of the Longbridge workforce towards Alchemy, that when the news became public, they were cheered considerably. They knew what the consequences of an Alchemy pullout could be.
The way was now clear for the financially strapped Phoenix and BMW to have another go at trying to make the deal work. BMW certainly preferred the idea of selling Rover to Phoenix than the only other remaining option of closure, and so, re-entered negotiations quickly. As Stephen Byers at the DTI still openly supported the Phoenix Consortium’s bid – and had done so, during the Alchemy negotiations, BMW played on the fact that Phoenix and BMW could accept help from Byers. John Towers and Nick Stephenson of the Consortium met up with BMW’s solicitors on the 2nd May, and as before with Alchemy, BMW offered Phoenix £500 million to take over the running of Rover and Longbridge – BMW remained concerned at the lack of a financial backer for Phoenix, and asked Towers how he could build over 200,000 cars per year without such a backer.
At this point in time, the government enlisted City analysts with knowledge of the motor industry to evaluate the deal in order to gauge whether Phoenix could pull it off. The general consensus was that while producing 200,000 cars per year, Phoenix could not possibly have a future in the industry.
This prognosis scared the DTI – simply because if Towers and Rover failed, there could be the very real possibility of him coming to the government, cap in hand, a couple of years down the line. As a result, the previous public backing of Phoenix was tempered – in fact, in the space of a couple of weeks, the DTI appeared to move through 180 degrees and refused to back the deal. Byers’ reasoning was simple: without proper backing, Phoenix would never make the Rover work.
Exasperated at this, BMW were now seeing their worst nightmare coming true: being held responsible by the media and the public for the closure of Rover. Throughout the Alchemy negotiations, they were acutely aware that the British media viewed Alchemy as nothing more than asset strippers, who did not care about MG and Rover. Everyone, it seemed, supported Towers and Phoenix. The public very much held BMW responsible for the mess – which as far as the Germans were concerned, came as a big surprise. Their own feelings were that they had not mismanaged Rover (untrue in many instances), and it was actually the government’s fault for the collapse of Rover because of the strength of Sterling. In fact, there were many reasons for the collapse, but in the end, it looked like it would be BMW would responsible for Rover when the music stopped.
In fact, it was the First Union Bank of North Carolina, who rescued the Phoenix plan on 7 May, when agreed to back the consortium by offering £200million of working capital. How much of a co-incidence it was that BMW’s flagship US factory at Spartanburg was in South Carolina is open to debate…
With the finance in place, Phoenix and BMW were back in business – and on the 8th May, Towers and BMW’s lawyers met to agree the deal. The final hurdle had been cleared, thanks to the Americans, and as a result, the agreement was signed that night. Rover was handed over to Phoenix for the nominal sum of £10, and in return, the company would receive £500million from BMW, which would cover the costs of redundancies and company re-structuring. Because of pivotal roles in the formation of the Phoenix consortium, John Towers made Nick Stephenson, John Edwards, and Peter Beale company directors. The deal settled upon was the one that Jon Moulton had pretty much devised himself all those months previously: the only difference between Alchemy and Phoenix was in the amount of cars that Phoenix promised to build.
The following afternoon, John Towers returned to Longbridge. He was mobbed by the press and declared a hero by the workforce – it must have been a very sweet moment for him.
Towers told the assembled media, ‘It’s a very satisfactory outcome for us. It’s an emotional day. We have a huge amount of work to do to get the cash flow into a positive balance. We are determined to do that.’ Even during the honeymoon period, Byers sounded a note of caution, ‘There are still difficult decisions. The proposals will involve a number of jobs being lost’. This was ironic, given the fact that the successful sale of Rover to Phoenix had probably meant that his job was saved.
For sure, the task ahead for Phoenix Venture Holdings Limited looked difficult, but the feeling of optimism that Towers managed to generate was infectious. Within weeks, the inventive new management at Longbridge began to embark on a series of announcements that slowly began to restore UK buyer confidence in the company. Obviously, without Land Rover and Mini, things would be a whole lot more difficult.
Could Rover make it? Certainly their prospects looked much better after the sale to Phoenix on 9 May 2000, than they did following BMW’s fateful announcement on 16 March… for Rover, the change in their outlook in 54 hard fought days had been very much a positive one.
I was there…
If you were there during the upheavals, we would love to hear from you.
Unnamed engineer based in Gaydon: “Prior to the public anouncement that BMW were to sell Land Rover to Ford there was quite a degree of panic within the design studio and (in order to give themselves the best chance of remaining a complete entity within the purchasers new group) there was a large purge of many of the Rover branded design oncepts and models.
“Within a week or so the design studio had transformed into the Land Rover design studio!There was also a fear that BMW would take away some of the pre-concept vehicles (there was a north/south engined Rover 200 with 4×4 which probably wasn’t going to be top of their hit list!) in particular the LCV 2/3 (which featured in CAR magazine in 2003) which was constructed with bonded aluminium space frames matched to a KV6 engine and was fully styled (drove very nicely). I believe this vehicle was hidden at the Heritage museum for a while.
I suppose the most poignant thought, and one which is overlooked when one hears of acquisitions, mergers and the like are the people who are affected. As soon as BMW announced what they’re plans were for the Rover Group the German engineers who we were working with and had become friends with were immediatly flown home – I guess the same thing must have happened in 1994.”
With thanks to John Hemming for his insights into the formation of the Phoenix consortium.
…and thanks to the “unnamed engineer”.
Is the Editor of the Parkers website and price guide, formerly editor of Classic Car Weekly, and launch editor/creator of Modern Clsssics magazine. Has contributed to various motoring titles including Octane, Practical Classics, Evo, Honest John, CAR magazine, Autocar, Pistonheads, Diesel Car, Practical Performance Car, Performance French Car, Car Mechanics, Jaguar World Monthly, MG Enthusiast, Modern MINI, Practical Classics, Fifth Gear Website, Radio 4, and the the Motoring Independent...
Likes 'conditionally challenged' motors and taking them on unfeasable adventures all across Europe.