BMW AG.
– The Rover Company
The Rover Company was a British Car manufacturing company founded in 1878 as Starley & Sutton
Co. of Coventry and originally produced bicycles and motorbikes. It produced its first car in 1904
under its now famous marque of the Viking Longship. After a string of mergers, nationalization and
takeovers, it became a part of the British Leyland Motor Corporation in 1968. The group was sold to
British Aerospace in 1988 and in 1994, the control of the group was passed to BMW of Germany.
BMW AG is a German automobile, engine and motorcycle manufacturing company which began life
as an aircraft engine company in the early 1900s. In 1923, it began manufacturing its first motorcycles
and started car production in 1928 after acquiring the Eisenach vehicle factory [key-9]. BMW acquired
the Rover Company in 1994 for ₤800mn. After investing about ₤2bn and getting no synergies, it sold
the company in 2000 to Phoenix Consortium for ₤10.
The Acquisition
BMW had a number of motives behind the acquisition of the Rover Company. The primary among
them was to grow. BMW wanted to increase their market spread while achieving a greater volume
spread. They saw Rover, which came up for sale at the right time as the perfect deal at that time. Rover
had acquired significant cost advantages due to its association with Japanese production methods. They
also had the front-wheel driving and the 4 x 4 technology that BMW wanted to acquire. The price
BMW paid was deemed to be a bargain as the cost to develop the technology and the production
methods from scratch were significantly more.
Another major factor in the acquisition was the low level of cost in the British manufacturing sector
compared to the costs in Germany. These costs, which were 60% lesser in Britain, had the ability to
substantially reduce BMW costs. Rover also has in its repository brands such as Mini and MG Rover,
which offered BMW the chance to exploit new markets and segments.
Analysis
Behind the acquisition of Rover by BMW, there was certainly a strategic motive and proper plans of
gaining synergies. However, the acquisition was unsuccessful because they didn’t plan the entire
process well. Palmer (2003) quotes both Kloss and Boorn in describing how the strategic plan got
stuck in the upper echelons of the hierarchy due to lack of communication and coordination. BMW’s
integration plan suggested a three-phase process in which the initial two years were ‘wasted’ in just
providing financial help without any integration of the two companies. It was 3-4 years before any
concrete integration plans began and only in 1999 were the two companies’ fully integrated [key-16].
Another important problem for this deal was the linguistic differences between the two companies.
Although BMW’s top management could do business in English, the engineers and the middle
managers were unable to do so. This created a lack of communication problem which eventually
delayed the integration process. There were also substantial differences between the business culture
of BMW and Rover. As Batcheler (2001) points out, the German direct approach was in contrast to the
more relaxed approach followed by the British.
Sirower (1997) suggested that it is incorrect to judge the soundness of an acquisition based on what it
would have cost to develop that business from scratch. For this case, it seems to be this same problem
as BMW’s decision was partly based on the substantial cost difference between developing the
technologies in-house and buying it from Rover. BMW didn’t achieve the synergies and ended up
spending ₤2bn and sold the company off to Phoenix Consortium for a token sum of ₤10.
Why the acquisition by BMW failed? Is the analysis given in the case is enough
reason for failure and is there other factors which are responsible for failure.
If you are designated Chief of Acquisition, how do you make sure that the
acquisition is successful?
