Germans quash MG Rover's hopes of better terms on Longbridge deal

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The Independent Online

Mg Rover suffered a severe blow yesterday after BMW warned that it would not improve the financial terms of its sale of the Longbridge car plant. In a further setback, the German car maker also indicated that it may not sell MG Rover the car engine and gearbox facilities on the Longbridge site which the British company is desperate to buy.

Mg Rover suffered a severe blow yesterday after BMW warned that it would not improve the financial terms of its sale of the Longbridge car plant. In a further setback, the German car maker also indicated that it may not sell MG Rover the car engine and gearbox facilities on the Longbridge site which the British company is desperate to buy.

The Phoenix consortium, which bought Longbridge in May for a nominal £10 and renamed the business MG Rover, had been hoping to adjust the terms of the deal when it signs "completion accounts" with BMW. Under the original deal, Phoenix received $500m in working capital from BMW and all the assets of the business, including stocks of unsold cars and components. It had been hoping for an adjustment to the deal worth up to £150m to reflect the fall in value of its stock of cars and the decline in residual values of contract lease cars which MG Rover is obliged to buy back from fleet operators.

But Werner Sämann, a main BMW board director and Rover's former chairman, said yesterday that there would be no amendment to the deal: "We signed an agreement on 9 May transferring all the assets and all the liabilities to Phoenix based on their valuation as of that date. There is no need to sign off any completion accounts. We have handed over the balance sheet and the business and that is it. If they have a problem with that they can go to arbitration."

Professor Sämann also said he had been surprised to read reports in the West Midlands quoting senior MG Rover executives as saying the engine and gearbox facilities would be under its ownership by Christmas. He said:"That is untrue. There are several renowned international companies who are interested in the business with whom we are negotiating. Phoenix is just one of them."

The engine plant produces around 200,000 K-series engines a year for both MG Rover and Land Rover, which is now under Ford's ownership. About 70 per cent of the engines go into MG Rover models. But Ford is understood to have voiced concerns to BMW about the security of future engine supplies, which may result in BMW selling the engine business to another manufacturer or an existing engine supplier. Professor Sämann also said BMW may get a better price by selling the facility to a buyer who is keen to expand production.

Separately, the race car company Lola and the components group Mayflower, both of whom are represented on the board of MG Rover's holding company, Techtronic, yesterday denied reports that they had set up a rival manufacturing venture because of dissatisfaction with the way the car maker was being run. The reports suggested that the setting up of the joint venture foreshadowed a boardroom split at Techtronic where Lola's managing director, David Bowes, and Mayflower's head of vehicle systems, Terry Whitmore, are non-executive directors. A Lola spokesman added that the joint venture to produce new car bodies for specialist niche vehicles was under discussion before Phoenix acquired Longbridge last May.

BMW, meanwhile, indicated that it could raise production substantially at its Oxford plant if demand for the new Mini was sufficient. The plant employs 2,500 people.

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