By Thomas Atkins
Frankfurt - German luxury car maker BMW AG on Thursday sold out of its struggling British subsidiary Rover, marking an abrupt end to its costly six-year drive to expand abroad.
Germany's third largest carmaker said after an apparently
stormy supervisory board meeting it would sell the bulk of Rover operations to British venture fund Alchemy Partners in the face of Rover's mounting losses.
The Munich-based motor industry icon took a 3,2-billion euro (about R18-billion) charge in its 1999 accounts to cover the cost of extracting itself from its ill-fated Rover commitment, entered into six years ago as BMW strove to become a major international producer.
The company provided no financial details of the deal with Alchemy amid speculation it would actually pay the fund to relieve it of Rover.
Rover's 1999 losses of 1,2-billion euros represented a sharp deterioration on the 957-million euro loss last year, which together with the spin-off charge pushed its otherwise profitable parent into the red with a 1999 loss of 2,5-billion euros, BMW said.
BMW blamed the strong pound, which cut into Rover profits by making its cars expensive abroad, and disappointing results of restructuring as the reasons for finally abandoning hope that Rover could be turned around quickly.
"(The) Rover strategy within the BMW Group has turned out to be inappropriate," it said in a statement. "The product offensive we initiated with Rover 75, 25 and 45 (models) was not as successful as we had hoped."
BMW's withdrawal from Britain's biggest automotive plant at Longbridge and other factories was greeted with dismay by trade unions and the Labour government, fearing thousands of jobs would be lost.
Unions at Rover threatened unspecified action were BMW to pull out, slamming its deal with Alchemy.
The unions say up to 50 000 jobs at Rover and its suppliers are at stake, and fear Alchemy would not hesitiate to axe jobs and strip assets to make a fast buck.
But the fund, which will rebrand Rover as the MG Car Company, vowed to be a good owner.
"It is expected that the MG Car company will employ a significant workforce and will rapidly develop into a self-standing highly viable British car manufacturer," it said.
BMW will retain the profitable Land Rover operations as well as the unit developing the successor to the legendary Mini. It also said it would launch a new BMW brand model.
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 - and sharing the fate of former CEO Bernd Pischetsrieder, who was pushed out last year.
The Quandts control 48 percent of BMW and have two family members on the board.
Industry sources say the Quandts lost patience with years of losses at Rover which had made the fiercely independent firm a target of takeover speculation.
"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 spokesperson Thomas Gauly.
The market greeted the family's resolve, however, and BMW shares extended their Wednesday gains by two percent to 31,70 after a 13 percent leap on Wednesday.
Analysts said almost no price was too high for the carmaker to rid itself of Rover as core operations under the BMW brand were highly profitable.
"A 3,5-4,5-billion euro cash payment to get rid of Rover, that would be worth it," said Merrill Lynch auto analyst Stephen Reitman. "Even those kinds of figures would be easier to handle than taking on continuing losses from Rover."
BMW has reported robust growth in its own-brand sales, which rose 11 percent to more than 110 000 units in the first two months of this year.
The sale of Rover would turn it back into a strong regional producer and scupper its once lofty global ambitions, but could make it less vulnerable to a predator.
BMW's low market capitalisation has driven speculation that the firm could be taken over even as the company has ruled out the possibility of a BMW stake sale.
Analysts say Monday's pact between General Motors and Fiat has put family-controlled companies like French mass car maker PSA Peugeot and upmarket BMW centre-stage as acquisition candidates.
GM and Italy's Fiat, No. 6 in the world, stunned competitors with news that they plan to swap shareholdings and join forces to expand in Europe and Latin America.
Pressure for a BMW decision on Rover was rising following a hard-hitting assessment by the European Commission earlier this month questioning the UK government's justification for a £152-million (about R1,5-billion) subsidy for the Longbridge plant. - Reuters