SHANGHAI/LONDON -- Shanghai Automotive Industry Corp, China's largest passenger carmaker, plans to buy MG Rover, say sources in England and China.
SAIC will boost its ambitions to become the world's sixth-largest automaker by taking an initial equity stake in MG Rover. The size of that stake is still under discussion, but an MG Rover source says the shareholding would increase over time.
MG Rover says current talks only involve the technology cooperation pact signed in June.
But sources in China and at MG Rover in Longbridge, England, say SAIC would like to own MG Rover outright and will take control of the British automaker in the long term.
"SAIC will buy MG Rover," says a source in China who is involved in the discussions. "When the announcement is made depends on the progress of the negotiations, hopefully in a few months."
A source at MG Rover confirms there is a longer-term plan for the takeover, though terms and details have not been ironed out.
The transaction would be in steps and it could be several years before SAIC would own all of MG Rover.
"There is an absolute and definite plan which seems to start with some kind of joint deal," the MG Rover source says. "I think over the course of months it becomes more and more Shanghai and less and less Longbridge."
The source adds: "Two or three years from now I would imagine SAIC to have the vast majority of the company. The relationship is good."
The deal would give MG Rover engineers the finances to produce the crucial replacement for the Rover 45 lower-medium car, which has been delayed often.
"This would be somebody coming from the Third World and making First World products, which would be quite challenging," says Nick Matthews, automotive fellow at Warwick Manufacturing Group, a research and training arm of Warwick University in England.
Under the developing agreement, the MG Rover source says, hatchback versions of the Rover 45 could be produced in Longbridge and sedans in China, where there is almost no market for hatches.
"What they don't plan to do is take all the production and stick it in China," the MG Rover source says.
The Chinese would move the Rover brand upmarket in China, says the source. The Chinese also see MG Rover's 1,247 western European dealers as a point of entry into Europe.
Max Pemberton, analyst for Autelligence, a London-based automotive research company, says that, in addition, MG Rover has an engine plant and an assembly plant to offer SAIC. "There is also a very great amount of engineering knowledge and expertise," he says.
Xiao Guopu, SAIC vice president, has said the company wants to become one of the world's six largest carmakers by 2020 through a mix of overseas acquisitions and by developing its own brand.
SAIC is already the main Chinese partner for Volkswagen and General Motors.
Plum ripe for picking
In late July, SAIC signed a memorandum of understanding to buy 48.9 percent of troubled Korean automaker SsangYong Motor. In 2002, it bought 10.6 percent of GM Daewoo Automotive Technology Co.
The Chinese automaker, which is wholly owned by the Shanghai municipal government, has also announced plans to make 50,000 SAIC-badged cars by 2007.
Buying MG Rover, and its technology, would help it meet that timetable.
SAIC's 2003 sales revenue was 186.2 billion yuan, or E18.23 billion. It sold 600,000 passenger cars between its two joint ventures. MG Rover produced 135,000 cars in 2003 and has seen its sales decline this year.
The British carmaker has been struggling to find a viable business model and industry insiders have for years been predicting MG Rover's imminent demise.
"I'm personally of the opinion that the Rover Group is on the point of disappearing," says Autelligence's Pemberton. "It's a plum ripe for picking."
Phoenix Venture Holdings, a consortium that bought Rover from BMW in 2000, has gradually sold off various portions of the loss-making business to raise cash.
Sources at MG Rover say the SAIC deal could spell the end to the British carmaker's alliance with Malaysian carmaker Proton.
"Nothing has been spoken of Proton the last few months," says one source.
On June 16, MG Rover signed a strategic technology sharing agreement with SAIC at the latter's Shanghai headquarters.
That partnership has not yet received approval from the Chinese government.
MG Rover was already burned once when its joint venture with Brilliance China Automotive Holdings collapsed in 2002.
Government approval in China can take a long time and, as the Brilliance China episode illustrated, unpleasant surprises can lurk.