Rolls-Royce Says Talks to Take Over Waertsilae Have Ceased

Jan 09, 2014 9:12 am ET

(Updates with six-month block on talks between Rolls-Royce and Waertsilae in seventh paragraph.)

Jan. 9 (Bloomberg) -- Rolls-Royce Holdings Plc, the second- largest maker of aircraft engines, said it has ended talks to take over Finland’s Waertsilae Oyj to boost non-aerospace sales. Waertsilae jumped the most in more than two years.

Rolls-Royce “confirms that it has been in preliminary discussions” with Waertsilae on a possible offer, and “those discussions are no longer continuing,” the London-based company said in a statement, after Bloomberg News reported yesterday that it was exploring an approach. Waertsilae also said that talks to buy all of the company are no longer active.

Rolls-Royce had contacted Helsinki-based Waertsilae about its interest in the marine engine division, two people familiar with the matter, who asked not to be identified because the deliberations were private, said earlier this week. The Finnish company has received interest from other potential buyers in the past, they said.

Waertsilae rose as much as 3.54 euros, or 10 percent, to 37.54 euros, the biggest intraday jump since August 2011 and traded at 37.51 euros as of 3:59 p.m. in Helsinki. Rolls-Royce fell 1.7 percent to 1,264 pence in London.

The size of the potential deal the U.K. company was considering “could suggest to the market that Rolls is on the M&A path,” Robert Stallard, a London-based analyst at RBC Capital, said in a note today.

Buying Tognum

A takeover of Waertsilae, the largest maker of engines for tankers, cruise ships and navy vessels with sales of 1.3 billion euros ($1.8 billion) in 2012, would strengthen Rolls-Royce’s marine unit, which cut its profit outlook in November.

Rolls-Royce is now blocked from renewing discussions with Waertsilae for six months, Morgan Stanley analysts said in a note today. “The strategic rationale for acquiring Waertsilae was clear,” given the complementary marine activities, they said.

The British company teamed up with Daimler AG to buy Germany’s Tognum AG in 2011 to gain the world’s second-biggest manufacturer of high-speed diesel engines for the marine, energy and defense industries. Stallard said Rolls-Royce’s “preferred acquisition” would be the remaining 50 percent of Tognum.

Growth Potential

Waertsilae and Sweden’s Wallenberg family, which owns a stake, have been reluctant to sell the marine unit, where they see growth potential, and have resisted previous approaches, two of the people said. The company has a market value of about 6.7 billion euros.

“We confirm the approach by Rolls-Royce with a preliminary proposal for a possible offer for the company,” Waertsilae said in a statement today. “In case the company receives such proposals, the Waertsilae board has an obligation to evaluate such proposals.”

Rolls-Royce’s marine unit has equipment on more than 30,000 vessels and serves 4,000 customers in the offshore, merchant, naval, fishing and submarine industries, according to its website. The marine business had revenue of about 2.25 billion pounds ($3.7 billion) in 2012, of which 43 percent came from services.

The Finnish company generates 32 percent of sales from power plants and 40 percent from services. The marine unit employs 2,139 workers. Waertsilae’s largest shareholder is Avlis AB, which is jointly owned by Finland’s Fiskars Oyj and Investor AB, the investment company of the Wallenbergs.

--With assistance from Matthew Campbell in London and Kasper Viita in Helsinki. Editors: Robert Valpuesta, Benedikt Kammel