Ford buys Land Rover
March 17, 2000: 7:54 p.m. ET
BMW sells U.K. unit for $2.9B; British prime minister angered by decision
LONDON (CNNfn) - Ford Motor Co. agreed to buy the Land Rover sport/utility division from Germany's BMW for $2.9 billion Friday, in a move that adds another luxury name to its stable of prestigious brands.|
The deal comes one day after BMW agreed to sell its Rover Cars unit to British investment firm Alchemy Partners, marking a hasty retreat from the Rover business, which has been a heavy drag on the German luxury auto maker's earnings.
BMW bought British-based Rover six years ago in an effort to bulk up and fend off potential hostile takeover efforts.
The Ford acquisition involves the entire Land Rover line of vehicles -- Range Rover, Discovery, Freelander and Defender -- including assembly and engineering facilities as well as Land Rover's testing center. The Land Rover business will become part of Ford's Premier Automotive Group, which includes Lincoln, Volvo, Jaguar and Aston Martin.
Ford has been building its presence in Europe's luxury car market after buying the car business of Sweden's Volvo for about $6.5 billion last year.
Ford Chief Executive Officer Jacques Nasser said the automaker expects to complete the Land Rover purchase in the second quarter, assuming European regulators approve.
"Land Rover is a terrific global brand with a wonderful heritage," Nasser said. "It is our intention to leverage Land Rover to its fullest potential."
To watch Ford CEO Jac Nasser comment, click here:
Land Rover had been widely regarded as the jewel in the crown of Rover's brand portfolio. However, executives at BMW said the unexpectedly successful market reaction to its U.S.-made X5 sport utility vehicle eliminates the need for Land Rover.
Blair says British government was hoodwinked
The British government had pledged its support for Rover. And BMW's decision to cut the company loose has got British Prime Minister Tony Blair hopping mad.
Blair reportedly called BMW chief executive Joachim Milberg personally on Friday to express his anger at the company's decision to drop Rover and his concern about the potential impact on jobs.
"He said it was wrong to have kept us in the dark and that many people in the West Midlands were feeling insecure about their future," a spokesman
for the prime minister said.
"They agreed that both the government and the companies involved have a responsibility to help those directly affected and to that end there will be a meeting between (Trade Secretary) Stephen Byers, BMW, Alchemy and Ford next week to discuss the issues that flow from BMW's decisions," the spokesman said.
Land Rover losing money
In a surprise statement at a Munich press conference Friday, BMW officials also disclosed that Land Rover actually posted a loss in 1999. Previously, Land Rover had been thought to be profitable while Rover Cars was regarded as the source of red ink for BMW.
Milberg and Helmut Panke, BMW's chief financial officer, denied suggestions that Land Rover had been sold too cheaply, claiming the price was "fair and realistic," and boasting that they had achieved a higher price-to-sales multiple than Ford had paid for Volvo Cars. In 1999, Land Rover generated revenue of approximately 4.5 billion euros.
Land Rover claims its Discovery range outsold its chief rival, the Jeep Grand Cherokee, by more than two-to-one during 1999.
But Milberg acknowledged that BMW's X5 model is selling as fast as its Spartanburg, S.C., plant can produce the vehicles, cutting into the Land Rover market. Milberg told the press conference the decision to sell Land Rover was difficult, nonetheless.
"In the automotive market, Land Rover is certainly one of the most famous
and strongest brands in the world," Milberg said. "The decision to sell Land Rover was certainly not easy. But in the light of our new strategy, we welcome the approach of Ford."
Rover to become MG Car Co.
By ditching Rover Cars, BMW has given up on its expensive project to develop the Rover badge for mid-market cars. Instead, BMW will develop a new range of cars for the segment, under the BMW name. The firm has not yet decided where to build these vehicles.
Under Alchemy, Rover Cars will be renamed MG Car Co. and will continue with Rover's current model range. The purchase is the largest ever attempted by Alchemy, a company founded in 1997 and previously known for several purchases in the retail industry. The new firm will "focus on developing a state-of-the-art British-built product range."
BMW's Milberg had harsh words for the British government, saying its wavering attitude to joining the euro-zone had a direct impact on BMW's decision to largely quit the country. "We made every effort to reorganize Rover," Milberg claimed. "Then we reached a limit to what we could tolerate."
Despite the $3 billion charge taken by BMW to cover Rover, the Bavarian automaker's obligations to its former subsidiary are not over. BMW is providing "support" to Alchemy and is likely to have to pay the investment group a hefty sum to take Rover off its hands. Panke stoutly denied Friday that BMW could end up giving Alchemy as much as $3 billion, but he would not detail the exact figure.
The German executives also refused to comment on the departure of three BMW board directors Thursday. The departures raise the total of main board members to have lost their jobs because of Rover to five over the past 12 months.
Alchemy said it already has formed management teams to run the company, and decisions on the model lineup will be made soon.
-- from staff and wire reports