Rolls-Royce alarm is justified, if oddly expressed
LONDON, Jan 27 (Reuters Breakingviews) - Rolls-Royce's (RR.L) new boss Tufan Erginbilgic has the right sentiments, but arguably the wrong words. Less than a month into his new gig the leaking of a global broadcast to staff means investors now know the former BP (BP.L) executive thinks his employer is a "burning platform". Cue a 4% drop in Rolls’ share price.
In fairness, the Turkish-British national’s alarm is justified. “Burning platform” has become a familiar metaphor for corporate situations where radical action is called for, the idea being that staff would be better off taking their chances in the icy ocean than staying amid the flames. Rolls is a bit like that: its share price has dropped 70% since 2014. JPMorgan reckons the sum of its parts implies an equity value of only 70 pence a share, 30% below the current share price. Hence a wide-ranging breakup may not work. Erginbilgic could cut more jobs or pursue a sale of his power systems business, but both would put him at odds with the UK government.
The problem with the phrase is that it’s most associated with Nokia's (NOKIA.HE) then-Chief Executive Stephen Elop, who used it a decade ago to describe the Finnish group’s plight. While Elop took radical action by selling Nokia's phone unit to Microsoft (MSFT.O) for $7 billion, the deal didn’t work and the buyer had to write it down soon after. As such, Rolls’ investors and employees may not see Erginbilgic’s choice of words as massively encouraging. (By Pamela Barbaglia)
Follow @Breakingviews on Twitter
(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
Capital Calls - More concise insights on global finance:
H&M’s fast-fashion parade is skating on thin ice read more
Sainsbury’s latest bid chatter looks overblown read more
Economic data tells half-truth read more
Diageo fortunes rest on reviving America’s thirst read more
Toyota without Toyoda takes a small step forward read more
Our Standards: The Thomson Reuters Trust Principles.
