Posted on 2-3-2004
Saviours turn Rover into £100m
private empire
Accounts reveal how car maker has been dismantled
Ian Griffiths and David Gow
The four men credited with saving MG Rover have dismantled
the group and created a private empire, an investigation by
the Guardian reveals.
Through a complex financial restructuring, the core Rover car
business, which is still making huge losses, has been isolated
from a number of profitable associate businesses.
The result is that if Rover were to fall victim to the ferociously
competitive pressures of the volume car manufacturing, costing
thousands of jobs in the Midlands, those who organised the purchase
of the business from £10 from BMW four years ago would
stand to walk away with more than £100m between them.
The company disputes the contention that the Rover group has
been structured for the benefit of the four owners of the Phoenix
consortium which rescued MG Rover, and absolutely rejects any
notion of asset stripping. However, analysis of the new structure
reveals that John Towers, Nick Stephenson, John Edwards and
Peter Beale will be at least £70m richer between them
if Britain's last independent volume car maker is forced to
close. This is on top of the £31m in fees and other benefits
the Phoenix directors have already received from the group.
Specific assets which now rest beyond the reach of Longbridge's
5,000 car and Powertrain workers and MG Rover dealers, who were
granted shares in the rescued business, include:
· The Powertrain engine business, worth at least £50m,
which supplies Land Rover, Lotus and Caterham cars, as well
as Rover.
· Studley Castle, a Warwickshire mansion formerly used
as a Rover training centre, worth more than £2m.
· MGR Capital, a car loan business, and two other leasing
businesses, worth about £24m.
On top of this, the Guardian's analysis also shows that the
promised development of a new MG sports model is now being undertaken
away from the core Rover business, while the company's spare
parts business has also been restructured.
Phoenix said last night that the deals involving Powertrain
and the Rover parts business "have both resulted in major
benefits to MG Rover". It added that smaller acquisitions
by Phoenix were "either no cost or low cost, with no material
profit stream for use anywhere in the group".
A collapse in sales towards the end of last year has triggered
fears in Whitehall that MG Rover, deprived of new models, including
the long-promised make-or-break new medium car, could go under
in a competitive car market.
An analysis of the corporate restructuring orchestrated by
the Phoenix four suggests there has been a systematic realignment
of businesses, once integral to the old Rover group, which ensures
economic benefit flows directly to the master company controlled
by John Towers, Nick Stephenson, John Edwards and Peter Beale,
rather than MG Rover itself.
Phoenix Venture Holdings has spent millions buying businesses
which have taken the master company directly into financial
services and the property market. In the West Midlands, a politically
sensitive region where marginal seats change hands regularly,
there is a growing sentiment that Rover has been betrayed by
the four men who promised its salvation and have since presided
over dwindling sales, continuing losses and a gradual erosion
of the workforce to little more than 4,000 in the car plant.
Messrs Towers, Stephenson, Edwards and Beale were feted as
heroes when their Phoenix consortium bought MG Rover with a
promise to save some 8,000 jobs and preserve independent volume
car production in Britain. The consortium eventually won the
backing of a government anxious to preserve up to 20,000 more
jobs in the Midlands components industry a year ahead of the
2001 general election.
The Phoenix four gave shares to car workers and dealers allowing
them to participate in the promised recovery of the struggling
MG Rover business. But the shares, representing 50% of the firm,
which the workers and dealers own in Phoenix Venture Holdings
(PVH), the master company which owns MG Rover, are of much less
value than the shares in the same company owned by the car company's
four saviours.
The equity owned by workers and dealers can only share in dividends
or assets directly associated with the car company. Those shares
receive no benefit in the other, more profitable, businesses
which Phoenix has acquired or created over the last three years.
The car company has lost over £500m since its new owners
took control, and has deferred any prospect of breaking even
until 2005 at the earliest. In the 2002 report to shareholders,
Kevin Howe, chief executive, warned of MG Rover: "It does
remain a significant cash drain on the overall group and must
make a breakthrough into profitability in the near- term."
He also suggested that PVH was pursuing a strategy which was
not driven solely by MG Rover. "We have moved from consolidation
to being a much broader church with several independent subsidiaries
working towards generating increasing levels of contribution
to PVH."
Mr Howe concluded: "PVH will continue to find new and
innovative ways of generating much needed profit and cash for
our group as a whole."
But, while the group as a whole may benefit, the bulk of shareholders
will not. If the four men who control PVH decide to close Longbridge
and withdraw from volume car production, they will be left with
a Phoenix business estimated to be worth at least £70m.
That £70m would be on top of the £31m that the Phoenix
four and chief executive Kevin Howe have already shared by way
of salaries, payments into trust funds and other rewards.
Despite the heavy losses at MG Rover and its investment in
new businesses PVH has retained a healthy cash position. The
2002 report to shareholders reveals that PVH had cash balances
of £315m at the end of that year.
The company has been helped by the £1.1bn dowry which
BMW made available to the Phoenix consortium as part of the
deal allowing the German car maker to escape from its disastrous
venture into the UK volume market.
BMW has provided £427m of cash by way of an interest-free
loan, repayable in 2049. It also handed to Phoenix at least
40,000 cars it had made but not sold with a value of around
£400m.
The Powertrain engines business, worth more than £100m
and now turning over £200m, was also handed over by BMW
in 2001. The German company also subscribed for over £200m
of MG Rover equity as part of the disposal of that business.
Questions are now being asked about how PVH has cho sen to
distribute the BMW dowry. Some industry analysts are concerned
that cash has been conserved to prop up day-to-day operations
rather than invested in the development of the new medium-sized
model regarded as central to MG Rover's long-term survival.
MG Rover says: "The major acquisitions of Powertrain and
XPart have both resulted in major benefits to MG Rover. Smaller
acquisitions, eg Studley Castle and Phoenix Distribution, are
either no cost or low cost with no material profit stream for
use anywhere in the group."
Rover accepts that some of the £427m loan note has been
used to finance the company's losses but argues the cash has
also been used to make significant investments in new products.
However, the new medium-sized model has still not been developed
and is not expected until late 2005. Some analysts and industry
sources fear it may never be built.
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