Merger News

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Sorry to take up the Bandwidth... but this is important! -- LFJII

BMW defends its heritage 

Dismissing reports, German carmaker denies plans for merger, smaller model=
 

February 15, 1999: 9:29 a.m. ET
=A0 
LONDON (CNNfn) - As luxury German carmaker BMW grapples with the problem o=
f
how to resurrect its money-losing U.K. Rover subsidiary, a more fundamenta=
l
question the company faces is how to preserve an illustrious heritage with=
out
inviting charges of heresy. 

With consolidation in the auto industry accelerating in the wake of last
year's tie-up between Daimler-Benz and Chrysler and last month's agreement=
 by
Volvo to sell its car unit to Ford Motor Co., BMW now is rumored to be a h=
ot
prospect for the next mega-marriage.

BMW, for its part, has dampened the merger talk by insisting that it is
committed to its independence. 

Shares of the company (FBMW) were up nearly 1.6 percent Monday in Frankfur=
t,
at 735.5 euros, however, as investors ignored the company's denials.

>Joachim Milberg, who succeeded BMW's ousted chief executive Bernd
Pischetsrieder last week, dismissed German press reports that BMW is
considering a takeover bid from General Motors Corp.

BMW is nearly half-owned by a reclusive German family, the Quandts, who ar=
e
seen as staunchly opposed to a tie-up that could dilute the company's bran=
d
image.

In recent weeks, the travails at the ailing Rover plant at Longbridge have
added to the perception of BMW's vulnerability. At the same time, analysts
say, political pressure from U.K. officials has been building on BMW not t=
o
abandon Rover in its time of need.

BMW vowed last week to commit itself to turning Rover around in the year 2=
000.
The pledge allayed growing fears in the U.K. about the imminent shutdown o=
f
the facility, with the potential loss of 14,000 jobs.



BMW 3 Series Compact


An upshot of the Rover saga has been a German press report -- picked up by
other European newspapers, including London's Financial Times -- that BMW
plans to build a new small car to prop up production at the Rover plant an=
d
help make it viable again. 

The plans reportedly entail a downmarket move by BMW to develop a 2 Series
front-wheel drive vehicle that would be priced below its current bottom-li=
ne
model, the 3 Series.

Industry observers say the success of other high-end European carmakers --
notably Volkswagen's Audi and Mercedes-Benz -- in rolling out lower-priced
models may heighten the appeal of such a move for BMW.

"Probably the success of Audi and Mercedes with small offerings has given =
them
pause for thought," said Stephen Reitman, an auto analyst with Merrill Lyn=
ch
Global Securities in London.


Basis for a shared platform?

BMW officials couldn't immediately be reached for comment Monday. But a
company spokesman told the Wall Street Journal that the carmaker has no pl=
ans
to develop a smaller model that could form the foundation of a shared
production platform at the Rover plant. 

Moreover, analysts note that building a front wheel vehicle would mark a
radical departure for BMW, which has prided itself on its quality line of
rear-wheel drives. For BMW, the 3 Series has been a sort of demarcation li=
ne
between quality and kitsch.

Critics say that by moving into lower-priced models, BMW would gravely tar=
nish
the brand image it has cultivated so painstakingly over more than eight
decades.

But Reitman suggests the market potential of a front-wheel drive may be to=
o
alluring to ignore at a time when BMW is facing an outsized challenge from=
 the
newly created auto colossus, DaimlerChrysler.

But other industry experts contend the speculation about a smaller model
merely obscures a more fundamental reality: that Rover, maker of niche car=
s
under the Rover, Mini, MG and Land Rover brands, is simply no longer viabl=
e as
a manufacturing plant.

"You're basically trying to keep an inefficient plant alive for political
reasons," said a London-based industry analyst who wished to remain
unidentified. "They're trying to come up with a solution that says, if the
U.K. comes up with a couple of million pounds[in subsidies], what could we
conceivably do?"

Describing the entire small-model scenario as one of "damage limitation", =
the
analyst added: "A few months ago, to say BMW would build a luxury front-wh=
eel
drive, it would have been heresy."

When BMW acquired Rover in 1994, observers say, the unit was seen as a veh=
icle
for expansion. Instead, Rover began to bleed the company's balance sheet,
creating the internal divisions that led to the recent upheaval at the top
ranks.

When German rival Daimler-Benz merged with number-three U.S. automaker
Chrysler in 1998, BMW suddenly found itself dwarfed by the combined compan=
y.  

by staff writer Douglas Herbert

------------------------------