Shanghai Automotive Industry Corp. is still interested in buying MG Rover but, by forcing the British automaker into bankruptcy, SAIC could get just what it wanted all along – MG Rover’s assets without its liabilities, Automotive News Europe reported in an advance copy of a story to be published on Monday.
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“Shanghai Automotive wants the whole package, including MG Rover’s research and development capabilities,” said a source in China close to the deal.
“Maybe it is better for us if MG Rover goes bankrupt.”
SAIC has already learned how to strip the assets from a bankrupt automaker.
As a junior partner, it watched General Motors back away from a deal to rescue South Korea’s Daewoo as an intact automaker, let it fail and then during bankruptcy proceedings picked up only the assets it wanted.
GM recruited affiliates SAIC and Suzuki to take a portion of its stake, so SAIC owns 10.6% of GM Daewoo.
SAIC has already paid £67 million (€98 million) for the intellectual property rights to MG Rover’s 25 and 75 sedans. It also owns the intellectual rights to the automaker’s K-series engines.
But the Chinese company aspires to become a global automaker with its own brand, not just the Chinese half of joint ventures making Volkswagen- and GM-designed cars. SAIC has a research institute in Shanghai, but it needs more mature R&D resources to design cars by itself.
“What Shanghai Auto really wanted was capability to design from scratch. That was the reason for the deal in the first place,” said Tony Murphy, national officer for automotive for Amicus, a British labour union that represents most of MG Rover’s employees.
But SAIC didn’t want millions of pounds in UK pension liabilities. And that’s what it would have gotten under the original purchase agreement. The scope of those liabilities was revealed during the due diligence process.
When key suppliers heard that SAIC was having second thoughts about the deal, they halted deliveries and forced MG Rover to stop production on April 7. The next day MG Rover called in the administrators.
The UK government gave MG Rover a £6.5 million loan last week to meet payroll until next Monday and, on Friday, the administrators PricewaterhouseCoopers said there was now no chance of selling all or parts of MG Rover to SAIC as going concerns and it would start issuing redundancy notices to workers.
MG Rover chairman John Towers is no longer in charge.
Now PricewaterhouseCoopers has taken over the company it is charged with disposing of MG Rover’s assets. If it chooses, SAIC now could pick which parts of MG Rover it wants, without any of its liabilities.
“This gives Shanghai Automotive the ability to buy directly from the administrator what they want to buy, without the legacy costs,” said Jack Perkowski, a former investment banker whose company, Asimco Technologies Ltd in Beijing, supplies components to SAIC.
