City & Business: BMW less than brutal

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The Independent Online
DIVORCE is still relatively uncommon in Japan, where marriage is seen as being for life. The same is true of business. Once a relationship is forged, the Japanese expect it to be long term. British Aerospace's decision to sell Rover to BMW, breaking, or at least severely disrupting, Honda's 14-year association with the British car manufacturer, is regarded in Japan as an act of short- termist betrayal as callous and dishonourable as Graeme Fowler's break-up with his wife. Last week it emerged that the former England cricketer had ended his marriage by fax. For Honda, the end wasn't quite as brutal. BAe has been flirting with BMW and others for months and Honda, which owns 20 per cent of Rover, was kept informed. Nevertheless, it's easy to understand why the Japanese feel so aggrieved. As recently as last autumn, BAe was still refering to Rover as a 'core' business. Publicly, BAe continued to hang on to the pretence that there was some kind of synergy between aerospace and motor cars that would eventually deliver substantial benefits. Every time John Cahill, BAe's chairman, was challenged over persistent rumours that he was about to dispose of Rover, he would play them down.

Honda had every right to believe that the strategy was to develop a strong, independent British car company in partnership with the Japanese. Behind the public facade, however, the real position was rather different. BAe had long since given up any hope of the promised synergies. Its executives came to believe they had been used as little more than a convenient parking lot for Rover, which showed every prospect of gobbling cash for years to come. They wanted a guaranteed exit and BMW, unlike Honda, gave it to them.

The best Honda could come up with was an offer to raise its stake to around 48 per cent, and then float the rest of the company on the stock market at some unspecified date in the future. It was an option, but not a particularly attractive one. Kleinwort Benson, BAe's merchant bank adviser, doubted whether Rover would ever be a floatable proposition. And even if it could have been floated, the amount raised was likely to fall some way short of what BMW was offering.

Is it really so dishonourable to shun the Japanese when what they are offering is demonstrably a much poorer proposition than the alternative? Honda has played a pivotal role in reviving Rover's fortunes, and it expected loyalty. It's the Japanese way. For Honda, it's hard to believe BAe could even contemplate abandoning such a promising long-term relationship for the fast fix of a barrowload of cash. There's rarely been a better example of the cultural differences that separate the Japanese and the Anglo-Saxon way of doing business.

Honda is angry enough with the turn of events to threaten withdrawal of its key technologies from Rover; a move that would leave the company in an extremely difficult position and might even scupper the deal with BMW. But for the moment we must assume that the pounds 400m the collaboration is said to be worth annually to Honda will ensure a smooth transition.

What future for BAe, now it's free from Rover's cash-consuming yoke? There are still a few more disposals to come - notably the space division - but Chris Avery of Paribas reckons that with the company returned to its roots as a pure defence and property play, the shares could be heading for pounds 7. Under whose stewardship is a different question. John Cahill and his chief executive, Dick Evans, are very different characters with very different approaches to business; it is no secret that the two don't see eye to eye. In some respects it would seem natural for Mr Cahill to bow out. He's largely done what the City expected of him and anyway his home is in the US - one hell of a weekly commute. According to friends, he's determined to see out his contract, which has nearly three years to run. Mr Evans has some powerful support on the board but is still tainted with the fiasco of the failed rights issue two and a half years ago. At this stage it's by no means clear who's going to get the upper hand.

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