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BMW loses Rover buyer
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April 28, 2000: 8:29 a.m. ET
Alchemy quits talks on UK car unit; may revive bid later, analysts say
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LONDON (CNNfn) - BMW's plans to sell Rover, its U.K. car-making business, were left in disarray Friday when the company that last month agreed to take over the German firm's British subsidiary withdrew.
However, industry observers were split as to whether Alchemy Partners would return to the negotiating table. The U.K. venture capital firm last month reached a preliminary deal to buy loss-making Rover.
The U.K. government had pressured BMW to extend the timeframe for the sale, to enable it to examine a rival offer led by Rover's former chief executive, John Towers. BMW said Thursday that it had received insufficient financial information from Phoenix, the consortium that Towers leads.
"BMW was under tremendous pressure from the British government to extend the due-diligence period for Towers," said Peter Schmidt, at consultant Automotive Industry Data. He described Alchemy's move as "a negotiating ploy".
However, other observers said BMW might be left with little choice but to close Rover if the Phoenix offer proves unacceptable and no other bids emerge.
 Shares of BMW (FBMW) slumped almost 8 percent to  27.30 after Alchemy's brief announcement, having risen more than 3 percent before the statement.
Alchemy said talks with BMW aimed at producing a final takeover deal had broken down, though it didn't disclose the source of the problems or say whether negotiations might restart. Rover has sustained heavy losses since BMW acquired the business in 1994.
BMW said the decision by Alchemy to abandon the Rover talks left Phoenix as the only contender to buy the British carmaker, adding that it plans to step up talks with Phoenix. But the company said it was open to other offers and would reach a decision on the fate of Rover Cars and its flagship Longbridge factory in central England in coming months.
"The possibilities for the Rover Cars operations are to sell them to other interested parties or closure," BMW said.
The government had favored the Phoenix proposal to the one Alchemy put forward, because Phoenix held out the prospect of laying off fewer workers and continue Rover production at higher volumes than under Alchemy's plan for greatly reduced car output.
Schmidt at Automotive Industry Data said he believed BMW had assured Alchemy that it would reach a final decision on the sale Friday, but was pressured into delaying a decision by the weight of U.K. government criticism.
However, he said the opportunity to restore Rover to profitability would tempt Alchemy back to the negotiating table once the Towers-led consortium had been given more time to present its rival bid.
"Rover's potential market share in Britain is around 10 percent, which still makes it a viable financial proposition for anybody," he added.
BMW, U.K. government under fire
BMW has faced a storm of criticism from U.K. politicians and unions over the plan to sell Rover to Alchemy, a move expected to cost around 9,000 jobs. The company had previously denied that it would sell or close Rover, which lost $99 million in 1999 and saw its European market share slump to 2 percent from 2.6 percent a year earlier. Its U.K. market share was around 5 percent, having been as high as 15 percent when BMW bought the company from British Aerospace, the defense contractor now known as BAE Systems (BA).
The Towers bid, which would maintain Rover as a high-volume automaker producing about 100,000 cars a year - twice the number envisaged by Alchemy's business plan - is preferred by the government and by unions.
British Trade and Industry Secretary Stephen Byers has come under fire for his handling of the situation. Byers had publicly accused BMW of lying over its dealings with the government over Rover.
Byers is also under pressure over a plan by Ford Motor Co. (F: Research, Estimates) to restructure its European business. Ford is widely expected to shrink its Dagenham car factory and slash its payroll in the U.K.
BMW last month agreed to sell Land Rover its U.K. luxury and sport/utility unit, to Ford (F: Research, Estimates) for $2.9 billion. Ford said the sale was unaffected by the latest developments in the sale of Rover Cars. 
-- from staff and wire reports
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