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Ford to buy Land Rover
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March 16, 2000: 12:39 p.m. ET
BMW, fresh off deal for Rover Cars unit, said to sell profitable SUV line for $2.9B
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NEW YORK (CNNfn) - Ford Motor Co. has agreed to buy the profitable Land Rover sport utility division of Germany's BMW for 3 billion euros ($2.9 billion), sources close to the matter told Reuters Thursday, as the world's No. 2 car maker adds another luxury name to its stable of prestigious brands.
BMW had already scheduled a news conference Friday to detail plans, announced Thursday, to sell its loss-making Rover Cars unit to the British venture capital firm Alchemy Partners. Sources said an announcement of deal with Ford would also come Friday.
The deals mark a hasty retreat of BMW from Rover business, which had been faulted as a drag on the Munich-based luxury auto maker's earnings. The Land Rover division has been profitable, while the Rover Cars unit, first seen as a key entree for BMW into the mid-range car market, lost money despite support from the British government to keep the line alive.
Ford has been bulking up in Europe's luxury car market, after buying the car business of Sweden's Volvo for about $6.5 billion about a year ago.
As part of its Alchemy deal, BMW said it will take a charge of 3.15 billion euros ($3 billion) to exit the business, which will drive BMW into a loss of 2.5 billion euros for 1999. BMW didn't provide financial details of the deal but experts speculated BMW will pay Alchemy to take control of Rover.
A spokesman for BMW declined to confirm or deny that the company is seeking to sell Land Rover. A Ford spokesman also declined to comment.
Rover turns into a disappointment
By ditching Rover Cars, BMW has given up on its expensive project to develop the Rover brand for mid-market cars.  Instead, BMW will develop a new range of cars for the segment, under the BMW brand. The firm has not yet decided where to build these vehicles.
In a statement, BMW Chief Executive Joachim Milberg admitted that the range of cars developed at Rover under BMW had been a disappointment.
"The product offensive we initiated ... was not as successful as we had hoped," Milberg said. He also blamed the British pound's rise against the euro, and said the rising currency made BMW's situation untenable at Rover.
BMW's withdrawal from Britain's biggest automotive plant at Longbridge and other factories was met with anger and dismay in London, where trade unions and Labour government officials blasted the proposed sale. Approximately 50,000 British jobs rely on Rover's Longbridge plant in central England, including regional supplier firms.
Union officials, speaking to reporters after a meeting with British Prime Minister Tony Blair, said Alchemy would need to "prove its credentials" before the government would provide financial support. The government previously agreed to provide 152 million pounds in financial aid to Rover.
More red ink at Rover
BMW said Rover's loss at the operating level increased to 1.2 billion euros in 1999 from 957 million euros. Excluding the Rover charges, BMW posted a profit of 663 million euros in 1999, compared to 462 million euros in 1998.
The Rover misadventure has been a financial and public-relations disaster for BMW, costing the German automaker an estimated $5 billion before the huge write-off Thursday. Last June BMW said it planned to invest a further $5 billion in Rover over the next five years.
 The intention had been for Rover to provide an opening in the lower cost segments of the auto market, but from the outset the project failed to deliver.
Bernd Pischetsrieder, the BMW chief executive who masterminded the acquisition in 1994, was ousted in February 1999 in an earlier dispute over how best to turn Rover around.
BMW's decision to pull out of Rover, whom German media dubbed "The English Patient," came amid an internal shake-up at the company, controlled by the secretive Quandt family.
Three management board managers departed on Thursday, apparently following a disagreement with the Quandt family over Rover.
The Quandts control 48 percent of BMW and have two family members on the board.
"The view of the Quandt family is that the sale of Rover cars is necessary and proper for the further development and a new focus for BMW," said spokesman Thomas Gauly.
Analyst John Buckland of Daiwa noted that the move reflected a U-turn in BMW's longstanding strategy of not putting a BMW badge on a mid-market car for fear of devaluing the company's exclusive brand image. He pointed out the new plan meant "they are following the same path taken by Mercedes," which has successfully launched its "A" class range.
BMW's efforts at Rover were hampered by the outdated nature of the colossal Longbridge plant. Once a byword for the worst excesses of 1970s labor unrest, the sprawling plant requires billions of dollars in investment to bring it into line with modern facilities elsewhere in Britain and mainland Europe.
The failure of two new models to rescue the company appears to have been the last straw for BMW, resulting in Thursday's controversial decision to bail out.
Rover to become MG Car Co.
Under Alchemy, the new firm will be renamed the MG Car Co. and will continue with Rover's current model range. The purchase is the largest ever attempted by Alchemy, a company founded in 1997 and previously known for several purchases in the retail industry. The new firm will "focus on developing a state of the art British built product range".
Alchemy takes over at Rover against a background of dissatisfaction at how the matter has been handled. Union leaders warned Thursday they would not countenance "asset stripping," amid fears for thousands of jobs at Rover and in related industries.
 The company promised to employ "a significant work force," but it would not say how many Rover workers will lose their jobs. Managing partner Jon Moulton, a former Citibank executive, admitted at an impromptu news conference on the steps of his central London office there would be job losses but would not say how many: "It depends on what needs to be done ... Longbridge will be reduced in size."
Alchemy said it had already formed management teams to run the company, and decisions on the model line-up would be taken soon.
Seeking a 'quick fix'
Analyst Philip Rosengarten of Standard & Poor's DRI Global Automotive Group said Alchemy would look for a "quick fix" for Rover and then seek to sell the business on to a trade buyer. He suggested Honda, rebuffed when Rover was first sold to BMW, could still be interested in the company. The companies still share platforms on several models.
Rosengarten said the focus on the MG brand looked a sensible move, although Alchemy's ability to sell on the business would depend on how successful it is at reviving Rover.
Moulton told journalists he would turn the company round, avoiding BMW's mistakes. "We will not be trying to be a mass market very large volume producer," he said. "We will be a medium volume producer with a niche marketing strategy."
"In three-to-five years, when Rover is a profitable company, we hope, we'd expect to sell it on."
Jettisoning Rover, after six difficult and loss-making years would relieve BMW of a major financial burden. That prospect fueled a 14 percent gain Wednesday in the company's shares. On Thursday BMW rose 5 percent to 31.8 euros.
Alchemy has already made a big splash in the booming private equity market but it has never attempted anything on the scale of the Rover deal.
In 1998, the group invested 234 million pounds in 21 deals, placing it second only to 3i (III) in the British private equity league tables. 
-- from staff and wire reports
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BMW
Alchemy Partners
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