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SCMP Reporter

The victory yesterday by the German car manufacturer BMW for one of the world's most prestigious car brands, Rolls-Royce Motors, is set to mark the beginning of an intensely fought battle for the very top-end of the luxury car market.

 Following its GBP340 million (about HK$4.43 billion) all-cash bid, BMW is expected to invest at least GBP500 million in Rolls-Royce during the next five years.

  It will also accelerate the expansion of the group's product range, as other rival car-makers step up their own plans to capture a slice of the market.

 Yesterday, rival German car-maker Volkswagen, which had also bid for Rolls-Royce, said it was not deterred by the decision.

 Volkswagen said it was still planning to establish a name for itself in the luxury car market.

 It said the success of its Audi brand in the executive market proved it had the ability to do the same in the luxury strand.

 Daimler-Benz, the German car-maker that owns Mercedes Benz, is also considering bringing out a limousine model, directly aimed at the prestige market.

 Yesterday, it said BMW's successful bid would have no bearing on its final decision on whether to launch the so-called Maybach saloon, on which it is carrying out a feasibility study.

 It said a decision on whether to go ahead with the project would be made by the end of the first half of the year.

 Ford Motor Co, the US group that owns the Jaguar car brand - traditionally seen as Rolls-Royce's closest competitor - has also unveiled plans to speed up Jaguar production.

 Analysts said competition was likely to intensify in the coming year, but that the purchase by BMW would help Rolls see off the competition.

 'They are the most able to see off the competition,' Colin Line, an analyst at Henderson Crosthwaite, said.

 Sir Colin Chandler, chairman and chief executive of British engineering group Vickers, which is selling Rolls-Royce, also declared BMW's offer as the best offer it had received for the company.

 He said it was the 'most attractive in terms of achieving best value for our shareholders and ensuring the continued success of this unique company'.

 BMW sought to ease concerns that its takeover might bring to an end the high-class image that is associated with the group promising to 'do our best to justify the trust that Vickers and Rolls-Royce have placed in us'.

 Shares in BMW became one of the best performing stocks in early Frankfurt trading, climbing 12 per cent at one stage to 2,110 deutschemarks.

 British aero-engine maker Rolls-Royce, which originally sold the car brand to Vickers, also applauded the deal.

 Due to the prestige attached to the Rolls-Royce name, it has long held rights of approval over any subsequent sale of the company, insisting that any buyer must be a reputable group.

 Yesterday, the company said that it also enjoyed a good relationship with BMW, through its 1990 BMW Rolls-Royce Aero Engines joint venture, which makes aircraft engines for the corporate and regional jet market.

 'While detailed negotiations are continuing, Rolls-Royce has reached a level of understanding for use and protection of the Rolls-Royce name and marques, including appropriate compensation,' the company said.

 Vickers said the sale of Rolls-Royce Motor Cars reflected a premium of GBP190 million over its book value, of GBP150 million.

 Commercial director Andrew John said the company intended to now return some of the proceeds to the group's shareholders.

 Vickers shareholders are yet to vote on the sale, but yesterday the group's shares had dropped more than 2 per cent to 225 pence.

 Mr Line, said the drop in shares was due to some disappointment that a higher sale price was not achieved, but he stressed that the BMW purchase was the best deal that could have been achieved.

  'When you have got a real power of veto from [parent] Rolls-Royce, and effectively one from BMW as well . . . they were the only buyer and the price achieved is at a reasonable level,' he said.

 Prior to the deal being struck there was some concern that Rolls-Royce, which owns the Rolls-Royce brand name would try and block the sale if it was made to a less respectable company.

 But analysts said that BMW was always seen as the favourite, given that it supplies eight and 12 cylinder engines to the company, as well as several large components.



BMW spurts ahead of rivals