The ‘Phoenix Four’ and MG Rover Group’s Long Road to Ruin

8/11/2019 The Phoenix Four and MG Rover Groups Long Road to Ruin

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The Phoenix our and MG Rover Groups long road to ruin

Tax evasion, bribery, mismanagement and corruption are just a few of the unsavoury details

that plagued the final years of a British institution. Rita Lobo investigates what went wrong

for MG Rover, and who is to blame.

When Deloitte was fined over 14m in 2013 over its involvement as accountants in the

winding down of MG Rover, the cycle was complete. After 20 years of mismanagement, and a

whole eight years since the messy dismantling of what was once one of Britains finest

manufacturing institutions, finally there was someone to blameat least partially.

Since MG Rover was sold off for scraps in 2005, leading to 6,000 workers losing their jobs and

the exponential enrichment of its owners, there have been a number of public enquiries,

which culminated last year with the Financial Reporting Council (FRC) fining Deloitte. This

final ruling is unlikely to bring solace to the embattled former employees, and if anything only

serves to shift some of the blame from the shoulders of the four businessmen known as thePhoenix Four. A report published in the wake of the closures that investigated the collapse of

the once-powerful company uncovered evidence of bribery, sophisticated tax-avoidance

schemes, and the use of evidence elimination software. It is clear that towards the end MG

Rover was a company rotten to the core and totally bankrupt. The only question that is yet to

be answered is how it was allowed to get this way, after government and trade unions

interfered on behalf of workers supposedly to ensure there would be no job losses.

Fools gold

When BMW bought the Rover Groupas it was then calledin the early 90s, the company

was already struggling with productivity and rapidly declining market share. Indeed, the Land

Rover was the only profitable segment of the business and BMW struggled to turn it around.

After some years of almost constant losses, BMW threw in the towel in 2000 and sold Rover

off. Land Rover went to Ford, the MINI series was re-launched successfully under the BMW

banner and the rest, all that would become the problematic MG Rover Group, was up for

grabs. At the time it was the last British-owned volume car manufacturer, and it would not

last much longer. Initially BMW announced that venture capital group Alchemy would be

taking over Rover. Alchemy had put forward a credible business plan that might have brought

Rover back from the brink. The idea was to focus on the MG sports car segment of the

business, which had remained somewhat viable. There would be job losses, but Alchemy hadguaranteed a 50,000 redundancy package to every man and woman laid off, as well as a

clear chance of bringing people back on board after the companys health was restored.

However, there was widespread outcry. Trade unions got involved, and the government was

forced to intervene. While concerns about substantial job losses were not unfounded, the

governments interference might have contributed to the companys eventual downfall. The

governments chief argument was that MG Rover was a volume car manufacturer and the

last British one at thatand to strip it down essentially to a boutique sports car producer

would be nothing short of criminal. Trade Secretary for the incumbent Labour government,

Stephen Byers sided with the trade unions and the deal between Alchemy and BMW stalled.


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From Phoenix back to ashes

Enter the Phoenix Consortiuma group of four local businessmen who joined forces with the

sole purpose of taking over MG Rover and rehabilitating it as a manufacturing powerhouse.

Led by John Towers, the group consisting of Nick Stephenson, Peter Beale and John Edwards,

appeared as if out of thin air with a counter-offer to what Alchemy had been proposing. Jobswould be spared. Promises were made to maintain the volume of vehicles produced at

200,000 a yearlow by industry standards, but beyond what Rover had been managing for

quite some time. Byers intervened again. There was enormous public pressure for BMW to

accept the Phoenix bid, in lieu of the Alchemy one, even though there were mutterings that

the Phoenix pitch was not entirely viable in the long run. For BMW, MG Rover was going from

a burdensome asset to a toxic problem. The involvement of the government and the vocal

trade unions meant the German manufacturer was keen to resolve the situation as quickly

and painlessly as possible. In a few months MG Rover had gone from a bad asset BMW were

looking to divest, to a substantial political problem. So BMW was forced to review its stanceand finally hear the Phoenix Consortiums bid. Eventually, BMW relented, Alchemy bowed

out, and the Phoenix Consortium acquired MG Rover for a nominal fee of 10, and secured a

427m soft loan to put it back on four wheels. Though the sale had gone through, and jobs

had been spared, at least for the time being, Byers was relentlessly criticised, but stood his

ground. In the end, thanks to the trade secretary, Phoenixs bid was put together and

finalised in less than a month. Three weeks ago when I got the [John] Towers Consortium

together with BMW and facilitated their first meeting, I was criticised in many quarters for

getting involved in that way, Byers told the BBC at the time. I think we were right then and I

think today we are seeing the results of that. Because the deal had become politically

charged with the involvement of the trade unions, the Phoenix takeover was largely

welcomed because it meant the company would remain in British hands and jobs would be

saved. However, in less than five years MG Rover would have shut down permanently, its

assets stripped, its employees dismissedand cruciallyits owners made extremely

wealthy.

Spare parts

Within a couple of years, the Phoenix Consortium had started stripping down MG Rover for

parts. It soon became undeniably clear what many had suspected all along their business

plan simply did not hold water. The 427m soft loan designed to help bring the company

back to its feet was squandered. The freehold of the MG Rover factory in Longview was sold

off to a property developer for 74m; the components business went for 100m; the

Shanghai Automotive Industrial Corporation of China bought the rights to Rovers engines;

and the profitable customer service division was incorporated by another business owned by

the Phoenix Four businessmen. During this time, the owners awarded a pension fund for

themselves and their families worth a jaw-dropping 16m. They also awarded themselves

generous bonusesallegedly agreed to during a luxury beach holiday the men took together

even as the company was crashing round their ears. In total the Phoenix Four, now knownmore as a gang than as a consortium of executives, paid themselves over 42m. By the time


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leading companies in Britain for close to two decades. Three of the four phoenixes have

retired to a life of luxury, while Stephenson has gone on to head another car company in

Florida. However, compared to the 6,300 workers they laid off when MG Rover went bust

with nothing but a paltry 3,400 redundancy payment, the Phoenix Four have done

extremely well for themselves. Though Deloitte was fined and the four directors banned from

running business, there is no undoing the world of harm the Phoenix Fourenabled at least

in part by the government of the time and the trade unions inflicted upon a community and

the irreparable damage they caused the British automotive industry. A number of questions

will likely be left unanswered as the greatest scandal of modern British industry fades into

nothing more than a collection of bad memories.

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The ‘Phoenix Four’ and MG Rover Group’s Long Road to Ruin