Revealed: Schroders move on Vickers

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The Independent Online
Schroders Investment Management was prepared to sub-underwrite a pounds 600m rights issue planned by Mayflower in order to fund its aborted bid for Vickers, owners of Rolls-Royce Motors, according to sources close to the company.

The support for Mayflower's hostile bid indicates that Schroders is prepared to see the defence and engineering group split up, unless it sells Rolls- Royce for considerably more than the pounds 400m suggested by City analysts. Schroders is Vickers' largest shareholder with a 19 per cent stake. It also controls around 4 per cent of Mayflower.

Last week, Mayflower abandoned its proposed bid rather than upset BMW, a big customer that is expected to vye with rival German car maker Volkswagen in the bidding for Rolls-Royce.

Mayflower said it would renew attempts to buy Vickers only if BMW changes its mind. Mayflower planned to keep the car-maker and the Cosworth engineering business and sell off Vickers' defence interests. Vickers' shares fell last week from 249p to 232p.

BMW threatened to break its contract to supply engines for the new Rolls Royce models if Mayflower bought Vickers. But, according to people familiar with the talks, the real threat was to the huge orders Mayflower receives for the body panels which it supplies to Rover, the BMW subsidiary.

The interest in the UK luxury car-maker is turning into a high stakes poker game. Neither BMW nor VW has yet made an official bid, but both have approached Lazard Brothers, the investment bank that is handling the sale.

Other companies reported to be interested include General Motors, Chrysler and Toyota and Rolls-Royce management. None, however, has confirmed its involvement.

VW, however, did confirm its interest last week in a move that should ensure a competitive auction. Analysts do not rule out the possibility that a bidder who wants Rolls-Royce may have to copy Mayflower and launch a bid for the whole of Vickers.

VW, which is twice the size of BMW in terms of sales, certainly has the money to pay a high price. It has cash flow of Dm5.4bn (pounds 2bn) and is planning to sell shares for about Dm7bn. With that spending power, it could easily outgun BMW.

The main problem for potential bidders has been BMW's stranglehold over negotiations because of its joint venture with the owner of the Rolls brand name, airplane engine maker Rolls-Royce, as well as the engine contract itself.

But Volkswagen is currently developing its own V12 engine, the favoured engine size for cars in the Rolls-Royce class. The company presented an Italian-designed sports car with a 12-cylinder, 420-horse power engine at the Tokyo Motor Show.

The concept car is known as the "W12," in reference to the two V6 engines that are joined at a 72-degree angle to resemble the letter W.

"Clearly, Rolls-Royce would have to delay the launch of the new product," expected next year if BMW pulled out of delivering Rolls engines, said Salomon Brothers' analyst John Lawson.

"I think it can be done," he said. "The W12 engine probably would do the trick, and there is plenty of space underneath the bonnet."

Mr Lawson sees the costs of delaying the launch and fitting a new engine at about a "few hundred million pounds".

Some analysts are not convinced that in the end VW, better known for its mass-produced Golf and Beetle cars, will make a serious bid for Rolls.

"I think they [VW] are just looking to muddy the water," said David Leggett, an analyst at CSM Europe. "VW has ambitions at the high end, but they are likely to do it themselves."

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