Daimler, Rolls-Royce clinch control of Tognum

FRANKFURT Mon Jun 6, 2011 8:50am EDT

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FRANKFURT (Reuters) - Daimler (DAIGn.DE) and Rolls-Royce (RR.L) have secured a 60 percent stake in engine maker Tognum TGMG.DE with a sweetened takeover bid, expanding their presence in higher margin industrial diesel engines.

However, the bidding consortium fell short of its initial goal, which was to win full control of Tognum, a manufacturer of military and ship engines once owed by Daimler.

Last month German car and truck maker Daimler and Britain's Rolls were forced to raise their offer to 26 euros ($38.07) a share, raising it from an initial 24 euros a share bid and valuing the diesel and gas engine maker at 3.4 billion euros.

They hope to tap into a global market worth more than 30 billion euros a year that is growing at above average rates.

But to gain access to intellectual property in the form of patents, and to enable a profit transfer agreement, bidders for German companies need to have control of at least 75 percent.

Daimler and Rolls said on Monday that winning majority control laid a strong foundation for future co-operation between the three companies.

OFFER EXTENDED

The initial takeover offer expired on June 1, but this has been extended and investors now have until June 20 to tender their shares.

Analysts say the fact that Tognum's management has backed the most recent offer could motivate other shareholders to tender as well.

Stephan Klepp at Berenberg Bank said, "It's quite likely that more shareholders will tender given that they have made a 40 percent gain on the stock compared with the pre-takeover share price."

But a question mark remains over some key holdouts.

Dutch bank ING, which holds a 9 percent stake in Tognum, declined to comment on whether they would tender. They had argued in March that Tognum's fair value including a portion of expected synergies from a tie-up would be as much as 32 euros per share.

Tognum produces diesel and gas turbine engines for tanks, armored vehicles, generators, cranes, trains and ships, where margins have not been squeezed as hard as in the autos sector.

Volkswagen (VOWG_p.DE) recently made a similar move to expand into high-margin niche engines with its offer for Munich based MAN (MANG.DE), in part because of the MAN Diesel and Turbo unit, specialized in large ship diesel engines.

For Daimler, which owned all of Tognum until selling the unit in 2005, the deal will allow it to tighten its grip on a major buyer of its truck diesel engines, which are retooled by Tognum for specialized uses.

The takeover will also allow Rolls to expand its marine and diesel power units, bulking up its existing Bergen marine and auxiliary-power engine business.

The bidding consortium said it had received acceptances representing 58.35 percent of the share capital of Tognum and bought a 1.52 percent stake on the stock market during the acceptance period.

Daimler already owned 28.4 percent of Tognum. It sold the company to Swedish private equity group EQT for 1.6 billion euros in equity and debt in December 2005.

But it then bought back more than 20 percent in April 2008, the year after its former unit went public.

($1=.6931 Euro)

(Additional reporting by Arno Schuetze, Chris Steitz and Harro Ten Wolde; Editing by Alexander Smith)

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