Rover Merger Case Study

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The substantial investment by BMW in the acquisition of Rover had a negative impact on the operations of Rover (a). Rover had been promised a further investment of 500 million pounds per annum, however, even though the UK suppliers of Rover were reassured, the relationship with Honda collapsed. Honda was responsible for design and development of Rover vehicles (b). The high initial investment in Rover also had other negative effects. The BMW management placed great faith in the management of Rover and allowed them to continue for the next two years. This was disastrous for operations (c). There were rising costs, poor scheduling, weak quality, falling market share, and more weakening of the brand image. As further investment was pumped into Rover and a commitment was given on building a new Mini and 750 million pounds were further invested in Land Rover, there was poor volume because new models were not scheduled before 2002. The plant was running at 62 percent capacity which further pushed up the costs. Even though there was further investment by BMW in Rover between 1998 and 2000, the high value of the pound hit exports. There were redundancies, work reform, and measures to increase productivity.

The high investments led to pressures for performance on Rover and when performance weakened, the threat of a possible take-over bid loomed over BMW. In the year 2000 parts of Rover were sold. The Phoenix group bought Longbridge and Ford purchased Land Rover. The high investment in Rover was made by BMW without due diligence. The company did not examine the accounts of Rover properly (d). They did not evaluate the market position and value of the brand Rover. In addition, BMW overestimated the skills of the existing management. What BMW failed to understand was that Rover was dependent on Honda for its operating efficiency(e). This was a failure of due diligence because of undue haste. The deal to take over Rover was completed by BMW in 10 days. During this period because of time constraints, BMW did not look closely at the operations of Rover.
BMW did not give adequate importance to the culture of Rover. These companies had different cultures. BMW ignored the cultural gap by assuming that Rover will run as a separate company under its existing management. Rover did not have a learning culture. The company employees were skeptical of new approaches to manufacturing. BMW had favored a lean manufacturing approach but after the takeover, the designs become obsolete. When Honda was in collaboration with Rover it had continuously improved quality at Rover. However, after the BMW takeover and after Honda left Rover, the designs, quality, and operations declined.
The investment in Rover failed because the leadership at BMW was not strong. The board was divided over whether the company should be acquired. After the acquisition a large number of board members of BMW resigned. There were several BMW executives who were not in favor of the acquisition. The financing that was promised after the acquisition was not fully given to Rover. There were severe problems related to the stewardship of Rover. BMW actually removed Rover from Honda. This led to operational disaster. BMW was warned by several directors that Rover required far greater injection of capital, and had too many negative issues that had to be resolved. Very few BMW directors wholeheartedly supported the Rover acquisition (f). Their apprehensions were not misplaced. It did not have profits or a strong balance sheet, and had been cash starved. It also had a huge capacity to build cars. At the time of acquisition Rover had a capacity to build 700,000 cars when compared to the capacity of BMW to build 500,000 cars. Was the objective of BMW to acquire a huge car making capacity? The investment hurt Rover because the German ...