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Rolls reverse for Vickers

Hopes of selling the luxury car maker at a premium are dashed as Daimler-Benz rules out bid
Vickers' hopes of selling the Rolls-Royce car company for a good price took a dive this weekend after Daimler-Benz denied any interest in bidding for the company.

"We refute all the speculation. We have no interest in acquiring Rolls- Royce," said Eckhard Zanger, at Daimler-Benz in Stuttgart. "We are pursuing a strategy of building on our strengths, not one of expansion by acquisition."

Vickers has encouraged suggestions that Rolls-Royce might be worth between pounds 400m and pounds 550m. This is a high figure for a company that has sales of pounds 300m, produces only 2,000 vehicles a year and is barely profitable.

When Ford bought Jaguar, it paid 1.6 times sales. This was a full price and reflected the fact that Ford had no subsidiary brands, that the Jaguar marque could be expanded and that Ford had just missed out on Alfa-Romeo. But Rolls-Royce is a very different proposition and - at the moment - looks unlikely to attract fierce bidding from the big manufacturers.

Until Daimler-Benz flatly denied its interest, Vickers' best hope for a high price was a battle between German bidders. Other potential purchasers such as Ford and Fiat have already stated that they are not interested.

A German struggle to buy Rolls-Royce was a realistic prospect until two years ago. But in 1995, BMW and Daimler-Benz fought for the contract to supply Rolls-Royce with its engines. When BMW won, Mercedes-Benz set out to launch its own limousine for the super-rich, the Maybach, unveiled at the recent Tokyo Motor Show.

"Our interest now is in building the Maybach. The response in Tokyo to this car was very good," said Mr Zanger. Privately, Daimler-Benz suggests Vickers decided to sell at this juncture when it saw the challenge from the Maybach.

Certainly, Vickers is selling at an unusual time, having invested pounds 200m in a new Rolls-Royce that is due to be launched next year.

Professor Daniel Jones, at the Cardiff Business School, said: "There must have been a judgement on the Vickers board that the latest model was not going to do it. That is the only explanation for the sale at this time. There have been problems with the new car."

Developing the new Rolls-Royce - the first to be unveiled in 15 years - has severely tested Vickers' finances.

A Vickers spokeswoman admitted: "We have to consider what happens after the next generation of cars. The resources would simply not be available to keep the company at the current pinnacle."

BMW is the only obvious buyer for Rolls-Royce. Its attitude has changed within a matter of days. Last week, it firmly denied any interest in acquiring Rolls-Royce. This week, it refused to comment.

Since acquiring Rover, BMW has been forced to invest heavily in new production facilities and new models, and the disenchantment in Munich about its British investment is still great. Lacking competition from Daimler-Benz, BMW now has every incentive not to overpay for Rolls-Royce, especially since further investment in new models will be needed.

While encouraging speculation, Vickers is becoming cautious about the prospects for the sale. Its spokeswoman said: "The auction is still in its early stages - if there is to be an auction."

Anything less than a full price would embarrass Sir Colin Chandler, Vickers' chairman, who said of Rolls-Royce this week: "We saved it, we nursed it back to health. This is the right time to divest."

The size of the proceeds from Rolls-Royce will determine the scale of Vickers' ambitions. It is also currently selling its medical division, raising an estimated pounds 80m.

The disposals will leave Vickers with its defence business, which makes Challenger tanks, its propulsion technology arm, which makes marine and aircraft propellers, and the Cosworth engine manufacturer.

Vickers is committed to expanding all divisions by acquisition. Sir Colin is especially keen to participate in the rationalisation of the British and European defence industry. By acquiring GKN's armoured vehicle business, Vickers could create a national champion in land-based weaponry. This would be certain to belong to the consortium building the next generation of European battlefield taxi, known as the MRAV. Whether Vickers can achieve this and become a significant European defence contractor depends on the outcome of the Rolls-Royce sale.