News : March 2004

MGR shows hand at Geneva

AFTER the company’s no-show at last year’s Frankfurt motor show, it was good to see that the Birmingham based producer had made the trip to Switzerland. There was no sign of the 45/25 facelifts, as MGR is keen to keep something up sleeve for the “home” show, but there was one controversial unveil, all the same…

Rover 75 V8; a more relaxed version of the ZT V8 scheme. More comfort-orientated and available only as an automatic, the Rover 75 V8 has been deliberately pitched at a more "mature" audience (changes included increased soundproofing, and a relocated engine). A nice idea, and the car that Rover enthusiasts have been crying out for, but the Geneva vibe was that MGR had unveiled an unfortunate adaptation of Audi's new family style.
Rover 75 V8; a more relaxed version of the ZT V8 scheme. More comfort-orientated and available only as an automatic, the Rover 75 V8 has been deliberately pitched at a more "mature" audience (changes included increased soundproofing, and a relocated engine). A nice idea, and the car that Rover enthusiasts have been crying out for, but the Geneva vibe was that MGR had unveiled an unfortunate adaptation of Audi's new family style.

Rover’s big announcement was the Rover variation of the 75/ZT V8, which it has to be said, did stop many observers in their tracks; and not all for the right reasons. One issue was certainly the grille treatment, which uncannily resembled that of the new Audi A6 (also a Geneva debutante). MGR quickly came back with a statement that claimed that the styling had been signed off a year before the car’s launch, but as Audi had been dropping hints about the new company’s new look for about the same amount of time, it looked like MGR could well have dropped a minor clanger.

…the vibe was that MG Rover had produced
a car frighteningly similar to Audi’s new
A6. And that the A6’s new front-end had been
modelled on Pischetsrieder’s goatee beard.
Ironic really…

“Unnamed Public Relations Officer”, England

Also new at the show was the XPower SV-R, a higher powered version of the Qvale Mangusta-based sports car. It was something of a pity that this car was overshadowed by the new 75, as it was overwhelmingly good news on the MG front; especially so, given the car’s lower than anticipated price, and the imminent delivery of the first production version.

TATA Streetwise?TATA’s stand, rather embarassingly, was located very close to MGR’s, and on the Indian company’s stand was a new “Streetwised” version of the company’s Indica/Indigo-based estate, called the Advent…

The Geneva rumour mill

My spies at Geneva with their ears to ground have reported back to towers, and it doesn’t look too good:

The Rover 75 V8’s styling: MGR’s stylists were over heard saying that the front-end restyle had been drawn up by an “outside consultant” – does that mean that MGR is distancing itself from the new-look car? And if so, why?
The company’s for sale: Industry sources were heard saying that MGR is up for sale; not sure that it ever wasn’t, but it is interesting to hear that perhaps, Phoenix might well be trying harder to offload Longbridge.
Will it fold? Certainly many people are predicting doom… one rival manufacturer is running a sweepstake on when it will happen…

MGR and Proton enter into talks

Proton’s Gen.2; a car that some observers thought was the facelifted 45, when it was spotted wearing pre-launch disguise and UK plates…

ON the 18th of February, a rather interesting press from Longbridge Towers appeared in the inboxes of journalists and enthusiasts across the world. Basically, Proton of Malaysia, and owners of Lotus Cars would be entering into negotiations with Phoenix Venture Holdings, regarding the possibility of collaborating on future model development in the future. It is an interesting development in the affaire Phoenix, because it means that the directors, and the workers at the Longbridge company can let out a small sigh of relief: someone loves them.

Of course, these are early days, and there is a long way to go, but it is encouraging to note that the company’s sales are up (compared with last year), there are signs of some TV advertising (at long last), and there are new models on the horizon.

Reactions have been mixed, but on the whole, it is seen as a positive step. One observer noted, “The only thing that surprised me about the Proton thing was that it didn’t happen in 2000! It always struck me as the most likely collaborative partner, especially given their ownership of Lotus. But I’m not holding my breath”. Another noted that there were potential flaws in the partnership: “The two companies appear remarkably similar – dated core models, over-reliance on home market, financially perilous – which makes me wonder who would gain most from a tie-up.”

He also relayed a rather unpleasant rumour: “…in the meantime, I hear work on RD/X60 has stopped again.” Food for thought.

The Proton/MGR announcement is relayed below:


Perusahaan Otomobil Nasional Berhad (PROTON) entered into a Letter of Intent (LOI) with Phoenix Venture Holdings Limited (PVH) on 18 February 2004.

PVH is a company registered in Birmingham, England. Through its subsidiaries, including MG Rover Group Limited, it is primarily involved in the business of engineering, research and development, manufacturing and selling of motor vehicles and related products, including accessories, engine, spare parts and other components.

The LOI envisages PROTON and PVH working together to pursue exploratory/feasibility studies concerning potential collaborations.

Phoenix Venture Holdings: The Guardian’s view

According to the Guardian, Phoenix Venture Holdings has successfully manoeuvred MG Rover; so much so, that if the car company went to the wall, PVH would continue happily on its merry way…

Having said that, it does not appear that the Directors would want this to happen, even thought it would make their lives easier!

The Guardian, 2nd March 2004, by Ian Griffiths.

THE dismantling of the original MG Rover Group, and its reconstruction under the Phoenix Venture Holdings umbrella, is a masterpiece in financial engineering.

Riddled with accounting complexities, the net result is breathtakingly simple: MG Rover now stands alone as a loss-making car maker. Meanwhile, the more profitable elements of the empire are owned by Phoenix, the master company controlled by John Towers, Nick Stephenson, John Edwards and Peter Beale – the four men who bought Rover from BMW for £10 in May 2000.

If Rover were to be closed, about 5,000 workers at its Longbridge plant in Birmingham would be out of work, Britain would have lost its last independent volume car company and the Phoenix Four would sit in control of a surviving business worth at least £70m.

This is not a situation which was envisaged when the Phoenix Four were heralded as heroes in May 2000. After the government, British Aerospace and latterly BMW had failed to nurture a sustainable Rover brand, the Phoenix consortium embarked on a mission which cynics said was doomed from the start.

Chronic overcapacity, decades of under-investment, fierce competition and the absence of a new “killer” model had left Rover as the sick man of the European car industry. What BMW had described as the English Patient was now being treated by doctors from the Midlands, not Munich.

The notional £10 purchase price was a headline-grabbing indication of Rover’s plight and BMW’s desperation to withdraw from what had become a cash-consuming pit, not a reflection of the underlying commercial reality. But the Phoenix Four’s leap of faith was perhaps less daunting than some imagined.

Away from the headlines, BMW had made it clear to Phoenix that a significant dowry, in excess of £1bn, would be made available to help it rebuild the car company. But such was BMW’s haste that the Phoenix Four had no time to carry out due diligence on the assets they were acquiring. Without an accurate assessment of the underlying finances, it was agreed that the final terms of the deal would be the subject of a completion agreement obliging BMW to make good any shortfall in assets it had given to Phoenix.

This completion deal was on top of the assets BMW had handed to Rover’s new owners and a supplement to the £427m interest-free loan, repayable in 2049, the German group had agreed to make.

The agreement, finalised in June 2001, was an integral part of the restructuring which has ended with Phoenix Venture Holdings as the Rover umbrella. Notably, the deal included the prize of the Powertrain engines and gearbox business, then worth more than £100m.

Yet in May 2000, when the consortium acquired Rover, there was no hint of the restructuring to come. Messrs Towers, Edwards, Beale and Stephenson used an off-the-shelf acquisition vehicle to carry out the purchase: Techtronic (2000).

An analysis of the accounts for Techtronic for the year to December 31 2000 suggests it was intended as the original holding company for the newly acquired business. The successes to date are discussed, and the challenges ahead, but there is a first hint of changes to come: “We are currently in the process of establishing the structure of the Group under a holding company that has been formed known as MG Rover Holdings.”

By late 2000 the Phoenix Four had decided to create a new holding company, MG Rover Holdings. But in 2001 the four controlling shareholders distanced themselves from the core car firm, finally renaming the company Phoenix Venture Holdings in January 2002.

There are several key areas at issue:

Longbridge plant, freehold land and other property assets

Estimated value: nil

During 2001, the Longbridge plant and accompanying freehold land, valued at £31.5m, were transferred from MG Rover and placed under the ownership of Phoenix Property Holdings. That was accompanied by land and buildings which MG Rover had owned on behalf of dealerships, valued at £14m.

In 1992, 42 acres of surplus land were sold to Advantage West Midlands. In January this year, a further 228 acres of the Longbridge plant were sold to St Modwen, a property developer, for £42.5m, under sale and leaseback. Those deals were done with PVH, not MG Rover.

The company insists that the £60m raised has been ploughed back into Rover.


Estimated value: £50m

The most significant event in 2001 was the final completion agreement between Phoenix and BMW, which outlined the further compensation the Germans were to provide to MG Rover’s new owners in settlement of the complex deal hurriedly agreed in May 2000. At the heart of this was the return of the Powertrain engines and transmission business, an integral part of the Longbridge business under BMW.

BMW had planned to transfer this business to a new greenfield site at Hams Hall near Birmingham. So when BMW sold Rover to Phoenix it retained ownership of the Powertrain business.

Although Powertrain’s biggest customer was MG Rover, the potential of this business as a standalone enterprise, with the ability to service a wider range of customers, was clear to everyone familiar with the Midlands car industry.

Its value was not lost on the Phoenix Four, who wanted it back. “It was always a key strategic objective to gain ownership of the Powertrain business,” the 2001 PVH accounts say.

Other companies were interested in buying the Powertrain business, but the Phoenix Four, who had been joined by Kevin Howe as chief executive, insisted that Powertrain be returned to them as part of the BMW completion agreement. In May 2001, the two sides agreed on a deal which saw Powertrain reassociated with MG Rover.

The benefits of ownership have been considerable, and Powertrain has produced benefits for MG Rover in respect of product development, focus and substantial savings.

However, rather than coming under MG Rover’s direct control, Powertrain was put under the control of Techtronic. The profits from this business would flow into Techtronic and then up to PVH, rather than be attributed directly to MG Rover.

At December 31 2002, Powertrain had net assets of £110m. The business had been valued at £109m when it was transferred from BMW. However, MG Rover now says a net asset valuation is inappropriate, pointing out that more than 80% of Powertrain’s business is with MG Rover. The company says it would not be possible to attach any serious worth to the business in the absence of MG Rover.

If Powertrain could not be sustained as a standalone business, it could be broken up. If its 200 acres of land are valued on the same basis as the adjacent Longbridge site, that would generate £37m.

The business had cash of £22m at end-December 2002. Even without attributing any value to Powertrain’s third party busi ness, the company would generate at least £50m on a break-up.

Studley Castle

Estimated value: £2m

The year 2001 also saw BMW return Studley Castle – a beautiful, 28-bedroom mansion which had been used as a training and marketing centre for the Rover car business.

The building, set in 28 acres of prime Warwickshire countryside, had been owned and managed by Rover Investments, but was retained by BMW. In June 2001, it was bought back by PVH for less than £3m. A local estate agent has valued the building, which has been transformed into a conference centre and wedding venue, at not less than £5m.

That valuation ignores other properties on the Studley estate. In an exquisite setting, yet close to the motorway network and the National Exhibition Centre, its value for conversion to an upmarket country hotel is plain to see.

Again, Studley Castle did not return to the MG Rover nest but to the Phoenix property business. Once more the direct benefit falls to the four controlling directors, not the car business.

MGR Capital

Estimated value: £6m

Later in 2001, using a curious joint venture between what is called the Phoenix Partnership and a subsidiary of banking group HBOS, the car loans book relating to Rover vehicles was also acquired. This had previously been run by Rover Financial Services and retained by BMW.

The Phoenix Four all own preferred shares in what is now called MGR Capital. John Edwards and Peter Beale are directors and jointly own 50% of the equity, with HBOS owning the balance.

It is a profitable business which is gradually being run down as car loans are paid off. The four directors already stand to reap £6m from the business when it is wound up and this figure is likely to grow. Although the acquisition was heralded as an important move for the car company, none of the benefit will flow automatically to Rover.

At the same time, PVH, through a new subsidiary called RV Capco, negotiated a deal with MG Rover whereby it would take on the job of marketing the used cars which came from MGR Capital as loans and leases were repaid or expired.

That company bought £65m of used cars from MGR Capital in 2002. But to compensate it for having taken on the job, RV Capco received unnamed and unvalued assets from MG Rover.

The company now argues that MGR Capital is not part of PVH. But a press release issued by MG Rover in 2001 said: “MG Rover has reconnected with an historic base of 58,000 customers, through their retail finance contracts, and taken steps to maximise the future residual values of Rover, MG and Mini vehicles leased under BMW ownership.The acquisition of Rover Financial Services from BMW has been made through MGR Capital, a newly formed joint venture between HBOS and the Phoenix Partnership. It has bought the customer contract portfolio for a total consideration of £340m. MGR Capital will manage the financing arrangements relating to the portfolio and, with MG Rover Group, the eventual disposal of vehicles at the end of their finance leases.This represents a further consolidation of MG Rover’s activities.”

Techtronic 2000

Estimated value: nil

The PVH accounts for 2001 represent the first produced by what had become the master company for the Phoenix Four. Techtronic, which owns MG Rover and Powertrain, this year described itself as a holding company which does not trade. However, by the end of 2002 Techtronic had amassed cash of £40m and paid dividends of £30m to PVH.

However, it is left to PVH to articulate, in 2001, on developments, plans and problems at MG Rover.


Estimated value: nil

The trend towards the isolation of MG Rover continued apace in 2002. Most notably, the contract for the outsourcing of the parts business, previously held by Unipart, was not renewed.

This is a contract which John Towers had been trying to wrest from Unipart since the mid-1990s, according to industry sources. When the contract expired in 2002, Unipart was replaced by Caterpillar Logistics, the US distribution group.

Phoenix makes much of the change in its accounts for that year. Crucially, however, profits from the parts business -trading under the new name of XPart – accrue directly to PVH, not MG Rover.

MG Rover argues that XPart constitutes part of the original MG Rover Group and any capital value would be attributed, therefore, to all shareholders, not just the Phoenix Four. So no value has been attributed in this analysis.

However, the 2002 report to PVH shareholders states: “In May 2002 XPart Limited was set up as a separate company under the PVH umbrella to handle the parts business requirements of all PVH companies and with a clear remit to develop a broader portfolio of third-party customers.”

Phoenix Distribution Limited

Estimated value: nil

Another PVH subsidiary, Phoenix Distribution Limited, was set up in 2002 to distribute the Tata utility vehicles being made by that company in India. This potentially lucrative business, which will have a standalone network of about 50 dealers, was again structured to ensure that the economic benefit fell directly to the Phoenix Four, not MG Rover, even though Phoenix Distribution’s management team will be “supported as appropriate by the skills and resource in existing functions within MG Rover”.

Insufficient information is available to place a value on this business.

Phoenix Distribution, incidentally, is a company which has had seven different names in two years. Incorporated on February 7 2001 as 115CR(087), it has been renamed SGL Trading, MG Rover Limited, XPart, MG Rover Parts, MG Rover Distribution and finally Phoenix Distribution on March 12 2003.

Leasing business

Estimated value: £18m

Although MG Rover remained loss-making throughout 2002, PVH still spent £13.1m on a leasing business from Barclays. This entity immediately contributed more than £10m to PVH’s profits in the form of tax losses. Another leasing com pany was bought by PVH from Barclays in 2003 at an estimated cost of £5m.

MG Sport and Racing and MG X80 Limited

Estimated value: nil

By the end of 2002, engines, gearboxes, parts, distribution, property and finance were all under PVH’s control. But MG Rover was not even allowed to remain the direct proprietor of all car production.

Filed accounts identify MG Sport and Racing and MG X80 Limited as two businesses with curiously parallel lives.

The group had signalled its interest in serious sports cars with two entries in the 2001 Le Mans 24-hour race. Yet the commitment to a race car for the road is not manifested through MG Rover but PVH. The model for a return to serious sports cars was called the MGX80. Based on trade assets which had been acquired in 2001 from the niche manufacturer Qvale, the car was seen to represent a new era of MG excellence. But the accounts show that the right to develop that car now rests with PVH, not Rover.

To confuse matters further, on July 19 2003 MG X80 Limited changed its name to MG Sport and Racing Limited. That was five days after it had acquired the entire trade and assets of the company whose name it was about to adopt. On July 19 2003, MG Sport and Racing duly changed its name to MGX80 Limited.

Industry analysts say there is insufficient data available to place an accurate valuation on the business. However, the assets acquired from Qvale cost £7m.

Edwards Cars

Estimated value: nil

Among PVH’s profitable portfolio, the acquisition for £1 of Edwards Cars, a struggling Rover dealership which relies upon PVH to continue as a going concern, is curious. But this dealership has big emotional ties to Phoenix. John Edwards, who owned the dealership, and his finance director, Peter Beale, were the men who rallied Rover dealers to support the bid for MG Rover in the first place. Both men are now part of the Phoenix Four.

In the two years for which accounting records are publicly available, PVH put together a profitable empire worth at least £70m. All of the component companies are capable of a profitable existence with or without MG Rover.

Powertrain and Xpart, most notably, have been structured with an imperative to increase third-party customers.

If MG Rover does collapse and the Phoenix Four walk away with scores of millions of pounds, many will be disappointed. But nowhere will that be felt more acutely than by the MG Rover workforce and the dealership network.

John Towers and his colleagues were lauded for the way they initially structured PVH to give staff and dealers 50% of the company.

Unfortunately, the holdings of these stakeholders are represented by A and B shares in PVH. Chief executive Kevin Howe owns C shares. Only the Phoenix Four hold voting D shares, accounting for 40% of the equity but 100% of the votes.

Under PVH’s company rules A, B and C shareholders are entitled only to a share in dividends which are paid directly from MG Rover. Their entitlement to PVH’s assets are again restricted, but this time to those which can be attributed to a more broadly defined MG Rover Group.

So far, under PVH’s ownership, MG Rover has continued to make losses so the company has not paid a dividend. At December 31 2002, MG Rover’s liabilities exceeded its assets by more than £200m, suggesting there would be little available for the A,B and C shareholders.

Messrs Towers, Stephenson Edwards and Beale – the controlling D shareholders – stand to share everything else.

February 2004 UK sales

Single month Year to date
2004 2003 Change 2004 2003 Change
Feb MG 793 0.87% 1,140 1.29% -30.44% 2,854 0.99% 3,074 1.12% -7.16%
Rover 2,599 2.84% 2,584 2.93% +0.58% 6,513 2.25% 5,812 2.11% +12.06%

MGR’s sales during February have slowed down – especially on the MG front. Perhaps this is down to the production freeze during December. As can be seen, Rover’s figures are slightly ahead of 2003 – so it is not all doom and gloom…

Keith Adams

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