The Fall of MG Rover
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Case Code : BSTR166
Case Length : 16 Pages
Period : 1975-2005
Organization : MG Rover
Pub Date : 2005
Teaching Note :Not Available
Countries : UK
Industry : Auto and Ancillaries
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
The 1990s - Takeover By BMW
In 1990, BAe faced major problems with its regional jets business. By 1991, the company was on the verge of bankruptcy. It could no longer afford to retain the loss-making Rover Group, which did not fit in well with its core business interests of aerospace and defense. Eventually, in early 1994, BAe sold the Rover Group to BMW for £800 mn. After the sale to BMW, the Rover-Honda collaboration was severed, as Honda did not want to retain equity stake in a company owned by a competitor. Both partners mutually withdrew the 20 per cent equity stake held in the other company...
Bankruptcy Under Phoenix
From May 2000, MG Rover became an independent company under the management of
Phoenix, a Midlands firm, headed by John Towers, Nick Stephenson, Peter Beale
and John Edwards, known as the Phoenix Four . The short-term risk associated
with the acquisition of Rover for Phoenix was minimal considering the generous
terms offered by BMW.
For its investment of £10, Phoenix got £909 mn in cash, net assets and loans.
The assets included the stock of 65,000 cars worth £350 mn and an interest-free
loan of £550 mn...
The collapse of the SAIC deal opened a can of worms. There were reports that
while MG Rover was going through a cash crunch, the Phoenix Four were
selling the assets of the company for their own selfish interests. Towers
refuted such allegations, terming them 'character assassination.'But the
British press dug in deeper to reveal the truth that from an initial
contribution of £66,000 by each of the four members to form Phoenix, the
Phoenix Four had become millionaires by the time MG Rover went bankrupt.
The Phoenix Four paid themselves very generous salaries and established
their own £13.5 mn pension fund, which together made each one of them richer
by £40 mn. As a multiple of the average employees'package, the average
package of the Phoenix four almost doubled from 25 times in 2000 to 49 times
in 2003. They paid themselves salary and benefits amounting to £815,000 in
2003, which was slightly higher than the average figure of £790,000 for
directors of similar sized companies in the UK.
Together with pension funds, their average annual package was £1.5 mn in 2003. In 2002, their compensation package was over £3 mn, more that that earned by BMW's directors...
Exhibit I: Bankruptcy Laws in the Uk
Exhibit II: Press Release from PWC about Appointment of Administrators
Exhibit III: Origins of the MG Rover Group
Exhibit IV: Analysis of BMW-Rover Deal
Exhibit V: MG Rover - Financial Highlights (2001-02)
Exhibit VI: Sales of Rover in the UK
Exhibit VII: Aftermath of the Collapse