Rolls-Royce takeover talks with Wartsila end with no deal

HELSINKI/BANGALORE Thu Jan 9, 2014 5:30am EST

A Rolls-Royce aircraft engine of a British Airways (BA) Boeing 747 passenger aircraft is seen at Heathrow Airport in west London April 7, 2011. REUTERS/Stefan Wermuth

A Rolls-Royce aircraft engine of a British Airways (BA) Boeing 747 passenger aircraft is seen at Heathrow Airport in west London April 7, 2011.

Credit: Reuters/Stefan Wermuth

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HELSINKI/BANGALORE (Reuters) - British engineering company Rolls-Royce (RR.L) made a takeover approach to Finnish ship and power plant engine maker Wartsila (WRT1V.HE) but the talks ended without a deal, the two companies said on Thursday.

Shares in Wartsila, with an enterprise value of around 7.3 billion euros ($9.9 billion), rose more than 8 percent after the companies confirmed the preliminary talks. They had discussed an acquisition of Wartsila's entire business rather than just its marine unit, as had been suggested by earlier reports.

Rolls-Royce, the world's second-largest aircraft engine maker behind General Electric (GE.N), has benefited from soaring demand for more fuel-efficient engines for planes by Airbus (AIR.PA) and Boeing (BA.N).

Buying Wartsila would have strengthened Rolls-Royce's marine business, which lowered its profit guidance in November.

It was not clear why the talks were terminated or whether Rolls-Royce had offered a clear price for the business. Wartsila has reported rising profits in recent years and is under little pressure from shareholders to abandon its independence.

But Liberum Capital analyst Ben Bourne said Wartsila's status as a leader in marine engines made it an appealing target.

"If you were Rolls-Royce, why would you not look at that opportunity?" he said. "You could become the dominant player in both civil aircraft wide-body engines and also marine engines. Seems perfectly sensible at the right price."

Rolls Royce shares fell 0.4 percent, with analysts saying it was likely to remain on the look-out for acquisitions.

Wartsila's third-quarter results beat market expectations, with the help of higher spending by its shipping clients. In addition to ship engines, the company also sells power plant engines and maintenance services.

The company was founded 180 years ago as a sawmill in the eastern region of Karelia, and played a role in Finland's industrialization in the past century. Its largest owner is a joint venture of Finland's Fiskars (FIS1V.HE) and Investor AB (INVEb.ST), the investment arm of Sweden's Wallenberg family. ($1 = 0.7353 euros)

(Additional reporting by Karen Rebelo; editing by David Holmes and Tom Pfeiffer)

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