The Fall of MG Rover

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Case Details:

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.

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"Rover's demise must give us all pause for thought about how we have failed to protect our once magnificent manufacturing industry and why…"¹

- Editorial, Daily Express, April 16, 2005.

"The death of a factory and the end of a great tradition… the suspects...British Aerospace, BMW, the Government, Phoenix Four…"²

- Sean O'Grady, The Independent, April 26, 2005.

MG Rover Seeks Bankruptcy

In its lifespan of over a century, MG Rover Group Limited (MG Rover), one of the oldest and largest automobile manufacturers in the UK, went through countless mergers, takeovers and partnerships. The last merger negotiations the company went through before it folded up, took place in June 2004. This time MG Rover was negotiating with China's Shanghai Automotive Industrial Corporation (SAIC)³ to sell 70 per cent of its equity stake to SAIC. These negotiations were critical for MG Rover's survival, given the fact that it had been a chronic loss maker since the mid-1970s. If the deal materialized, MG Rover was to develop a new car model in collaboration with SAIC in an effort to pull up its falling sales.

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However, SAIC required MG Rover to be solvent at the time of signing the deal and for two years thereafter. On an examination of MG Rover's books, SAIC realized that the UK-based company was not capable of meeting these solvency requirements. Consequently, SAIC called off the negotiations.

On April 08, 2005, after the negotiations with SAIC collapsed; MG Rover succumbed to huge debts and sought bankruptcy (Refer Exhibit I for a summary on bankruptcy laws in the UK).

Phoenix Venture Holdings (Phoenix)⁴, the owner of MG Rover, issued a statement that the directors had taken necessary steps to appoint administrators from PriceWaterhouseCoopers⁵(PwC) for managing MG Rover and its subsidiary Powertrain after the bankruptcy (Refer Exhibit II for the press release regarding the appointment of administrators). With this development, Britain lost its last major domestic automobile manufacturer.

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1] "People Want Answers,"www.guardian.co.uk, April 16, 2005.

2] Sean O' Grady, "So Who Killed MG Rover?", www.motoring.indenpendent.co.uk, April 26, 2005.

3] SAIC, a government-owned company is one of China's largest automotive companies with about 50 plants in the Shanghai area. It manufactures passenger cars, tractors, motorcycles, trucks, buses and automotive parts. The company's other operations include car leasing, auto parts wholesale and retail and financing. For the year ending December 31, 2003, the company posted total revenues of $11,743.30 mn.

4] Phoenix Venture Holdings Group includes MG Rover, Powertrain, XPart, MG Sport and Racing and MG Rover Property.

5] PwC, one of the largest accounting firms in the world, was formed when Price Waterhouse merged with Coopers & Lybrand in 1998. It has offices across the world, providing clients with services in three lines of business: assurance (including financial and regulatory reporting), tax and advisory. On October 02, 2002, PwC sold PwC Consulting, its global management consulting and technology services unit, to IBM.