BMW to enter talks with Phoenix group to save troubled Rover

BMW to enter talks with Phoenix group to save troubled Rover
REUTERS

FRANKFURT, APRIL 30: German car maker BMW AG said it would start talks with the UK Phoenix consortium early next week on the sale of Rover in a bid to save the loss-making British subsidiary from closure.

BMW (FBMW) said negotiations would begin on Tuesday after the consortium led by former Rover chief John Towers reassured the Bavarian company that it had sufficient financial clout to keep Rover car production alive and save up to 24,000 British jobs.

Phoenix, which aims to maintain mass-volume production at Rover's flagship Longbridge plant near Birmingham and limit job losses, became the sole bidder for Rover on Friday after rival front runner Alchemy pulled out of takeover talks.

"At the moment this path is not only open but also the only desirable opportunity to continue the Rover Car operation. Otherwise closure is inevitable," Rover chief and BMW management board member Werner Saemann said in a statement.

Around half the 50,000 jobs supported by the Rover Group among car parts suppliers and other businesses in the English West Midlands are in jeopardy if Germany's third-biggest car maker fails to strike a deal with Phoenix.

BMW said on Friday it would remain open to alternative bids until the end of May after venture capital group Alchemy withdrew from 11th hour talks after they failed to agree on who would bear the brunt of Rover redundancy costs and liabilities.

Tata group, a leading Indian conglomerate, on Thursday rejected reports it would enter the race for Rover, leaving Phoenix as the only contender to save Longbridge from closure.

BMW, which has itself become subject to takeover speculation due to the Rover crisis, called on the British government, unions, suppliers and dealers to do everything in their power to facilitate a rapid agreement.

Plans by venture capital group Alchemy Partners to cut production back at Rover by transforming it into a niche producer of sports cars alarmed the British government and unions and rallied support behind the alternative Phoenix bid.

Munich-based BMW on Friday warned it would close Rover unless it finds a buyer to replace Alchemy Partners. But Phoenix and BMW -- which effectively ruled out the Phoenix bid on Thursday as a deal with Alchemy seemed imminent -- face an uphill battle to pull off a deal to prevent Rover's demise, according to industry sources.

Munich-based newspaper Sueddeutsche Zeitung reported in its Saturday edition that a BMW executive had described the Phoenix bid for Rover as "unrealistic."

John Moulton, managing partner at Alchemy, was also pessimistic about chances of success for Phoenix. "I honestly believe it is a non-starter," he told BBC radio on Saturday.

A German newspaper reported on Saturday that British Prime Minister Tony Blair asked German Chancellor Gerhard Schroeder to encourage BMW to drop talks with Alchemy in favor of Phoenix. The German government declined comment on the report.

The closure of Rover Cars would prove a humiliating defeat for BMW after a fight to defend its prestige and restore its tarnished image in the UK, according to analysts.

With plans to manufacture Rolls-Royce luxury limousines at a greenfield site in the UK from 2003 and produce a new Mini car at its Oxford plant, BMW's image could be seriously damaged by resorting to the closure of Longbridge.

BMW, which last month agreed to sell its Land Rover operation at Solihull to Ford Motor Co. (F: Research, Estimates) for $3 billion, plans to retain its Oxford plant to build a new Mini and to make engines at a new facility at Hams Hall near Birmingham.

BMW, which also decided last month to jettison Rover after pumping nearly $4.5 billion into its during six fruitless years, also said it would retain 2,000 Longbridge workers to build engines and gear boxes.

But after Rover losses last year pushed BMW 2.5 billion into the red, the company is under growing pressure to cut its losses in Britain, estimated to be around 2 million pounds a day.