The Golden Phoenix

British cars, specifically British cars made by the mass of car makers who became British Leyland, are our stock in trade. The history of British Leyland has more twists and turns than Eastenders, particularly in its final days under The Phoenix Four. 

So when news stories began appearing this week about Messrs Beale, Towers et al I was immediately interested. I’ll be honest, I’ve always bought the line that the famous four feathered their own nests and hung the workers out to dry. This view was largely based on media reports and local anecdotes, for example about the sale of Studley Castle, the former BL management centre located a few miles from the Great Escape site. Like most people I have never had the time to peruse the 800 page Government report into MG Rover’s collapse. 

Now, thanks to a link on a Facebook group, I have. Not every word, I have to admit, but most of it. I have sacrificed a considerable amount of my already depleted brain cells to bring you a summary of what The Phoenix Four actually got up to. So here it is a bitesized analysis of what killed MG Rover split into the main topic areas.

Sale by BMW

When Beemer decided to bail it sold the good bit – Land Rover – very easily, leaving it with the less desirable rump of MG and Rover. Everybody, including the Government, knew that this business was not viable in its current form, due to inefficient factories and ancient products.  So either it would have to be drastically slimmed down or partnered with a suitable cash-rich car maker.  This is why BMW provided a £500m ‘dowry’ to the Phoenix consortium to take the problem off their hands. 

The BMW deal seems to have been concluded very quickly, particularly compared to the slow pace of the SAIC JV. This seems to suggest a lack of due diligence with BMW rather than a criticism of SAIC.  Quite why it all had to happen so quickly is unclear but certainly issues like a business plan and the pension shortfall don’t seem to have received serious analysis by the Consortium. BMW gave Towers and his partners £500m to offload the English Patient – whether your plans are short or long term, that dowry alone feels pretty persuasive.

The Phoenix Four

The saviours of British Leyland were:

John Towers – former managing director of Rover

Peter Beale – finance director who previously worked for a Rover dealer in Stratford 

Nick Stephenson – engineer who was a former director of Rover/BMW

John Edwards – ran a Rover dealership in Stratford

Towers and Beale are generally acknowledged as well equipped for the roles they played in the business. Stephenson and Edwards, according to the Government report, were competent in their specialist fields but were pushed well beyond their competences and comfort zone.

Business Structure

From the start the structure of the Phoenix Four deal should have raised alarm bells. The four formed a limited partnership and set up a business called Techtronic. Techtronic ‘bought’ MG Rover and received the loan from BMW. By design or coincidence this structure enabled the directors to distance their financial liability and risk from the actual business they had bought – and keep the cash outside the floundering car company. In effect Techtronic lent money to MG Rover (which had to be paid back) and earns interest on the loan. This arrangement generated a surplus which was fed back to the limited partnership. So whatever happened at MG Rover, careful management of funds at Techtronic would enable the directors to benefit from surpluses created by interest on the invested BMW loan and on loans to MG Rover. It didn’t matter if the BMW loan was run down and MG Rover defaulted – short term they would gain, receiving funds that didn’t need to be paid back. 

The Risks Taken by The Phoenix Four

The four directors made much at the time of the purchase of their personal risk – and repeated this line after the collapse. However, the Government report finds that this simply wasn’t true – there was no personal risk. According to the directors they stumped up seed cash required to fund the bid and underwrote legal fees. In fact they each put in £60,000 and did not underwrite legal fees. In the circumstances while £60k is a significant sum, taken against the windfall of interest on £500m it was hardly a risk. Similarly, immediately on signing the deal the directors awarded themselves £1m ‘reward’ to be paid by MG Rover. Instead of paying themselves this money they opted to take ‘loan notes’ – while this kept cash in MG Rover it also earns the directors even more money as interest accrued to them on these notes. They called in the loan during their tenure. 

Director Remuneration

We all expect the people at the top to look after themselves. The Phoenix Four did this quite well. Each was paid well in excess of the salaries paid to directors of other UK car companies including Ford. Their combined bonus packages were in some cases double comparable firms. None of the directors except Towers had ever earned salaries even close to the sums they claimed. Yet apparently they complained that they were being underpaid. The four directors were able to agree their remuneration between them – there wereno external checks or approval required. 

Director Bonuses

Throughout its ownership by The Phoenix Four MG Rover’s finances were on the slide. It sold less cars and made less money year on year. To survive it sold assets and worked through the BMW dowry. Despite this the directors awarded themselves bonuses of around £20m. Even in a company like MG Rover directors have to justify the basis on which bonuses are awarded and so they did this by using ‘milestones’ like car sales and progress with various Joint Venture projects. Except these claims never stacked up – whilst car sales floundered and JVs stagnated the directors funnelled millions in the form of ‘bonuses’ into an offshore pension fund directly from MG Rover funds – well out of reach of the administrator. So, the directors earnt money via Techtronic and directly via MG Rover. 

MG Capital

The latest news stories concern the disposal of MG Capital by the receiver. This has resulted in another cash bonus for The Phoenix Four. They have argued that they risked their own personal assets to buy MG Capital and therefore they should benefit. Except, according to the Government report, they didn’t.  They used the loan notes that they awarded themselves to underwrite loans obtained to fund the purchase. As the loans were awarded from MG Rover funds, a decision proposed and agreed only by the directors, this can hardly be said to be a risk – if something went wrong they ultimately had access to a £500m pot that would pay the loans. The MG Capital deal was similarly hugely favourable to them that any short term ‘risk’ was far outweighed by the benefit. For their individual ‘investments’ of a few hundred thousand pounds in MG Capital, each director appears to have received several million pounds.

Were the directors committed to MG Rover?

I think it would be churlish to suggest that the four simply took the deal for short term gain. They definitely worked extremely hard to make the business work and throughout their tenure many good decisions were made