British Aerospace Sells Rover Group to BMW for $1.2 Billion

British Aerospace's sale of its 80 percent stake in Rover Group to BMW has brought an end to British-owned mass auto production. The $1.2 billion deal, worth five times the initial purchase price, makes BMW the new owner of Rover Group, which produces four-wheel drive vehicles, sports cars, and sedans. British Aerospace acquired Rover from the government six years ago for $225 million. The company was sold to BMW due to Honda's unwillingness to take over the whole company, and British Aerospace's desire to focus on its core activities of defense and aerospace.

Key Takeaways:

• British Aerospace sold its 80 percent stake in Rover Group to BMW for $1.2 billion, ending British-owned mass auto production.
• The sale price is five times the initial purchase price of $225 million, which British Aerospace paid six years ago to acquire Rover from the government.
• Honda, which holds the remaining 20 percent stake in Rover, was hoping to double its share in the company but was unwilling to take over the whole company.
• British Aerospace's Chairman John Cahill stated that the sale of Rover will allow the company to focus on its core activities of defense and aerospace.
• Reports suggest that BMW may slash jobs to increase profitability, despite reassurances from BMW's CEO Bernd Pitschesrieder that Rover's 30,000 employees' jobs are safe.
• Honda President Nobuhiko Kawamoto expressed disappointment at the decision, citing the long-term efforts to establish a firm future for Rover as a British company with its own brand identity.
• BMW's acquisition of Rover gives the German automaker a manufacturing foothold in Britain, where labor costs are lower than in Germany.
• The sale also enables BMW to gain market share in the four-wheel drive market, which is expected to grow faster than any other market segment in Europe.
• BMW's rival, Mercedes-Benz, is also aiming to increase its market share in the four-wheel drive sector and has announced plans to build a manufacturing site in Alabama in the United States.

Statistics:

• The sale price of $1.2 billion is five times the initial purchase price of $225 million.
• Rover Group's average debt is $1.35 billion annually, relating to the seasonality of its business and the high cost of distribution.
• Honda's share of Rover Group is 20 percent, which it was hoping to double in ownership.
• BMW's workforce is 71,000, with a reduction of 2,500 jobs last year.
• BMW's estimated 1993 profit is $227 million.
• Rover Group's worldwide sales surged last week, indicating it may make a pre-interest profit in 1994 of between $60 million and $75 million.

Sources:

• British Aerospace
• BMW
• Honda Motor Co.
• Deutsche Bank Research
• The Transport and General Workers' Union
• Rolls-Royce
• Jaguar
• Ford