Honda may break ties with Rover

February 22, 1994|By Bloomberg Business News

MUNICH -- Japan's Honda Motor Co. yesterday distanced itself from a long-term commitment to Britain's Rover Group PLC, now controlled by Germany's BMW, and indicated that it might take a go-it-alone stance in Europe.

Honda's cautious new approach became clear as Bayerische Motorenwerke AG, or BMW, agreed to take over full ownership of Rover Group by acquiring the 20 percent stake held by Honda. But that accord did not resolve the question of Honda's continued cooperation with Rover.

"The vital question is not yet answered," said Andreas Wahl, German equities analyst at Hoare Govett Securities Ltd. Analysts said that Rover's current model lines depend on technology and parts supplied by Honda.

"Honda could do BMW some pretty serious damage in the short term" if it suddenly withdrew from the contracts, said Keith Hayes, equities analyst at Merrill Lynch in London.

Honda said yesterday only that it will decide whether to continue working with Rover after future discussions with Rover and BMW.

"I'd look for a slow, orderly withdrawal," said Merrill Lynch's Hayes. Honda has the upper hand in the negotiations, but also would be a loser if the cooperation with Rover is broken off abruptly, he said.

The split between Honda and Rover could delay Honda's efforts to increase its presence in Europe by leaving Honda on its own to find suppliers and distribution channels, said Keith Donaldson, an automobile industry analyst at Salomon Brothers Asia.

Honda President Nobuhiko Kawamoto said yesterday's announcement reflects Honda's decision to rethink its strategy for expansion in Europe.

"Until now, our European strategy has included collaboration with Rover," he said. "In the future, we intend to create a more independent operation in Europe, using our own resources."

Last month, BMW agreed to acquire 80 percent of Rover Group from British Aerospace PLC for $1.2 billion. The transaction requires approval from British Aerospace shareholders.

After a meeting in Tokyo yesterday between BMW Chief Executive Bernd Pitschetsrieder and Mr. Kawamoto, Honda said it was ending the cross-shareholding between Rover Group Ltd. and Honda of the U. K. Manufacturing Ltd.

BMW confirmed that it was acquiring Honda's 20 percent stake in Rover Group, and would sell Rover's 20 percent stake in Honda's U. K. unit to Honda. BMW declined to value the transaction.

BMW also said that Honda's withdrawal from Rover equity does not affect licensing and cooperation contracts between Rover and Honda.

"It doesn't bother us to work with this connection," said Uwe Mahla, press spokesman for BMW. "I can't speak for Honda."

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