A REMARKABLE deal has seen BMW acquire Rolls-Royce, the most prestigious name in motoring, for just £40 million - less than a month after Volkswagen bought Rolls-Royce from Vickers for £479 million. Volkswagen and BMW - Volkswagen's chief rival in the battle to buy Crewe-based Rolls-Royce Motor Cars - have signed a 'memorandum of understanding' which sees Rolls-Royce and Bentley - bought by Volkswagen - broken up.

Three days after the arrangement was announced Rolls-Royce Motors chief executive Graham Morris resigned in protest at the break-up of the prestige car group. It is understood the deal - agreed at a German golf course and overseen by two German politicians but announced in London - was put together after BMW, which supplies Rolls-Royce with engines, said it would withdraw supply next year.

But, under the terms of the deal, BMW will continue to supply Rolls-Royce Motor Cars with engines and components on the basis of existing agreements. That will apply to Rolls-Royce cars until December 31, 2002, and to the Bentley Arnage for the lifetime of the model. According to the agreement BMW will acquire the Rolls-Royce name, which is owned by aero manufacturer Rolls-Royce, for £40 million and, until December 31, 2002 will allow Volkswagen Group to continue to use it on vehicles produced at Crewe.

From January 1, 2003, the Volkswagen group will sell vehicles under the Bentley brand name. At the same time BMW will be able to sell cars under the Rolls-Royce name complete with the distinctive Rolls-Royce radiator grille and Spirit of Ecstacy emblem.