Car giants in the frame to do battle for control of Rolls-Royce

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The Independent Online
A five-way fight for control of the luxury car maker Rolls-Royce was in prospect last night as Mayflower, the automotive engineering group, was poised to commence battle with a pounds 1bn bid for its parent group, Vickers. Michael Harrison and Chris Godsmark report on the contenders.

As Mayflower's advisers, BZW, put the finishing touches to a bid likely to value Vickers at around 280p a share, it emerged that Ford of the US, BMW and Daimler Benz of Germany and Fiat of Italy were contemplating throwing their hats in the ring.

Another US car-maker, Chrysler, was also said to be studying the situation. The bid from Mayflower will depend on the financial markets stabilising and is expected to value Vickers at a little over pounds 1bn.

John Simpson, the acquisitive chief executive of Mayflower, which is little more than half the size of Vickers, is believed to have gathered enough support from City institutions to launch the bid without a bigger partner. The bid will be heavily debt-financed with about two-thirds borrowings and one-third debt. This will entail Mayflower raising as much as pounds 650m in debt with the remainder financed from equity, probably a discounted rights issue.

Mayflower may opt to offer Vickers' shareholders, led by Schroders with a 20 per cent stake, its own highly rated shares as an alternative to cash. Vickers, whose other interests span Challenger tanks, the Cosworth automotive engineering business and propulsion systems, has been in touch with the Takeover Panel and believes Mayflower should make its intentions clear by tomorrow.

Weekend reports that BMW would launch a full bid for Vickers in order to thwart Mayflower were being down-played yesterday. However, BMW will have a key role in deciding the outcome of the bid. It is a major partner of Rolls, supplying the new 12-cylinder engine for its next generation of models, and also has a close relationship with Mayflower, which is a supplier of body panels for both the MG and Land Rover, which are owned by BMW.

One City source said last night: "I would be very surprised if BMW were to launch a bid. It seems they have given their tacit approval to Mayflower."

It was pointed out that, were BMW to buy the group, then Ford would probably cancel the contracts it has with Cosworth, a Vickers subsidiary.

However, it emerged yesterday that Ford in Detroit had registered an interest in Rolls with Vickers' financial advisers, Lazard Brothers. Ford of the UK had earlier denied it was contemplating a bid for the business.

Fiat, which owns the Italian luxury car-maker Ferrari and Alfa Romeo, is also understood to have indicated an interest while Chrysler is thought to be a potential bidder as well. Mayflower is likely to justify the highly- geared nature of its bid by arguing that the enlarged business would be highly cash generative and therefore able to withstand large levels of debt.

However, Sir Colin Chandler, chairman of Vickers, has already made it clear that one of the main planks of any bid defence would be an assault on the financial position of Mayflower. It also believes that if a widespread auction develops for Rolls, then City institutions that hold shares in both companies will refuse to underwrite any offer from Mayflower.

Meanwhile, Vickers has confirmed that it has won a pounds 100m contract from Oman for 20 Challenger tanks, to be built in Leeds and Newcastle. Another order from Qatar is also in the offing.

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