By Li-mei Hoang
LONDON, March 7 British engineering company
Rolls-Royce said on Friday it would fund the purchase of
German carmaker Daimler's 50 percent stake of a
jointly owned power systems company using cash and some
Rolls-Royce said it had ample liquidity to take full
ownership of the three-year-old joint venture Rolls-Royce Power
Systems with Daimler's holding estimated to be worth 1.9 billion
pounds ($3.18 billion).
The company said the transaction was expected to be
completed within the next six months subject to the usual
Jeffferies analyst Sandy Morris said the surprise move could
add up to 5-6 percent to its shares when they open on Monday.
"The using of cash and borrowing facilities to pay for this
clearly means that the related interest charge is modest and
therefore the enhancement to Rolls-Royce's earnings is probably
5 or 6 percent and a useful little fillip," he said.
"Having full control over a business that has significant
potential synergies with other part of Rolls-Royce gives you a
free hand and that has got to be good," he added.
The 50-50 joint venture contains the assets of German engine
maker Tognum, which Daimler and Rolls-Royce bought in 2011 for
3.4 billion euros.
Tognum makes diesel and gas turbine engines for tanks,
armored vehicles, generators, cranes, trains and ships.
On the basis of long-term supply agreements, Daimler will
continue to be an important supplier of heavy-duty and
medium-duty diesel engines to RRPS going forward.
Daimler said it would use the cash it will receive for the
sale for investments in the expansion of its core business.
Last month, Rolls-Royce warned that U.S. and European
defence cuts mean that a decade of profit growth will come to an
end this year, sending its shares sharply down and providing
added incentive to refocus investor attention on the company's
"Rolls-Royce Power Systems has added scale and capability to
our reciprocating engines business," said Chief Executive John
Rishton in a statement.
"It has outstanding technology, operates in long-term growth
markets and has proved a valuable addition to our Marine and
Industrial Power Systems division," he added.
Rishton said the option, which is subject to a formal
valuation process, was valued at 1.9 billion pounds on
Rolls-Royce's balance sheet, ending Dec. 31 2013.