VW Will Split Rolls-Royce Motor Cars With BMW

From Bloomberg News

In a surprise twist, German auto giant Volkswagen agreed Tuesday to split Rolls-Royce Motor Cars with BMW, the rival it outbid for the luxury auto maker less than a month ago.

The deal also gives BMW rights to the Rolls-Royce nameplate and leaves VW with ownership of the Rolls plant in Crewe, England, and the right to make the Bentley model. BMW will produce Rolls-Royce cars.

The agreement, which takes effect in 2003, avoids a legal battle over ownership of the Rolls-Royce brand name and ensures that BMW continues to supply engines to both marques. BMW will let VW use the name free of charge until 2003.

Under the agreement announced Tuesday, BMW Chairman Bernd Pischetsrieder now has what he wanted--and for just $66 million. BMW is paying that sum to Rolls-Royce, a jet engine maker with close ties to BMW and nothing but a world-famous name in common with the British auto maker.

During the bidding battle for Rolls-Royce Motor Cars, the jet-engine maker made it clear it favored a deal with BMW, its partner in a separate aerospace venture. Vickers, the former owner of Roll-Royce Motor Cars, had initially accepted a bid from BMW and then switched to VW, to BMW's annoyance. The engine maker had threatened to sever the supply of engines and other parts to Rolls-Royce Motor Cars if VW won the bidding.

Facing a potentially vicious fight in courts, the three parties worked out a compromise, which executives said was signed early Tuesday on a German golf course.

VW Chairman Ferdinand Piech said he would have liked to keep both the Rolls and Bentley brands, but the breakup was the only way to avoid a dispute that could have turned away loyal buyers.

"Not one of us wanted a long legal debate, because in the meantime nobody would buy a Rolls-Royce," he said. "Only lawyers would win that way."

Rolls-Royce Motors has already seen sales drop 30% in the last six weeks amid concern about the car maker's future, according to Chief Executive Graham Morris.

Also Tuesday, Volkswagen reported a 70% jump in it first-half profit to $462 million from the same period a year earlier, on a 16.7% increase in sales.

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