1 The Department's relationship with
MG Rover
1. The Phoenix Consortium acquired MG Rover Group
Limited from BMW in May 2000 and subsequently transferred ownership
of the Company to Phoenix Venture Holdings Limited[2]
(Figure 1). In this Report, the term MG Rover (the Company)
refers to MG Rover Group Limited and Powertrain Limited.[3]
Both MG Rover's management and the Department understood that
the Company's long term viability was likely to depend on it establishing
a strategic partnership with another automotive company to help
it update its already ageing model range. The Department estimated
that MG Rover had enough cash to keep it going until 2004 or 2005.[4]
Figure
1: The main companies within the Phoenix Venture Holdings Limited
group in 2004
2. Between 2000 and 2004 MG Rover made limited calls
on the Department and UK Trade and Investment to help its discussions
with potential overseas companies. The Department, however, did
not have details of the Company's financial position and business
plans. Instead, the Department used publicly available information
to keep abreast of the Company's fortunes. Following adverse publicity
when MG Rover's 2002 accounts were published in late 2003, the
Department commissioned a review of the Company's prospects.
The review, completed in April 2004, concluded that MG Rover's
trading activities were consuming significant funds and that the
Company might run out of cash as early as autumn 2004, although
the available funds might last until autumn 2006 if the Company
could cut back its cash consumption. In response, the Department
stepped up its monitoring of the Company's prospects. [5]
3. With increasing concerns over the Company's financial
position the Department completed a second review in December
2004 which looked at the commercial logic behind the Company's
proposed deal with the Chinese Company SAIC, announced in June
2004. The Department predicted that the deal was likely to lead
to the loss of 2,000 to 3,000 jobs at MG Rover. The review concluded
correctly that without any additional external finance MG Rover
would run out of cash in early 2005 and go into administration.[6]Key
events in the Department's relationship with the Company prior
to 2005
May 2000 - The Phoenix Consortium acquired MG Rover.
2000-2004 - The Department monitored MG Rover's performance. Working with UK Trade and Investment, the Department provided, where requested, support for the Company in connection with discussions with potential overseas partners.
April 2004 - The Department completed its first major review of MG Rover's prospects which concluded that the Company might run out of cash as early as autumn 2004.
June 2004 - The Company declined the Department's offer to provide diplomatic support for the proposed deal with SAIC.
November 2004 - Following senior Departmental contact with MG Rover, the Company accepted the Department's offer to provide diplomatic support for the SAIC deal. The Department initiated another review of the Company's prospects, which was completed in December 2005.
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4. The Department began to draw up contingency plans
in April 2004. These plans were subsequently updated and developed
but they did not cover all the key issues that were to require
attention. The Department had initially judged that assisting
the local community to cope with a collapse of the Company was
likely to offer better value for money than providing rescue aid
to MG Rover. It therefore focused its planning on mitigating the
consequences of any collapse. The Company announced its negotiations
with SAIC in June 2004 but the Department did not take account
of the proposed deal in its contingency arrangements until the
end of 2004. The Company did not take up the Department's initial
offer of assistance on the deal in June 2004. When it eventually
accepted the offer in November 2004, the Department tried to engage
with the Chinese authorities. It was not until early 2005, however,
that the Department sought detailed information on the Chinese
Government's process for approving the SAIC deal and on whom they
should talk to in China.[7]
2 Ownership of MG Rover was transferred in December
2000 when Phoenix Venture Holdings Limited was called MG Rover
Holdings Limited. The Company's name was changed to Phoenix Venture
Holdings Limited on 30 January 2002. Back
3
Phoenix acquired Powertrain Limited from BMW in 2001. Back
4
Qq 3, 157-158; C&AG's Report, paras 1.3, 1.5, 2.3 Back
5
Qq 6, 69, 84-86; C&AG's Report, paras 2.11-2.16 Back
6
C&AG's Report, paras 2.17-2.18 Back
7
Qq 7, 74-78; C&AG's Report, paras 8a (iv), 2.15, 2.17 Back
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