Daimler to Get $3.36 Billion in Rolls-Royce Venture Disposal

Apr 16, 2014 7:32 am ET

(Updates with analyst’s comment in fourth paragraph.)

April 16 (Bloomberg) -- Daimler AG, the world’s third- biggest maker of luxury cars, will receive 2.43 billion euros ($3.36 billion) for the 50 percent stake in an engine joint venture that it’s selling to partner Rolls-Royce Holdings Plc.

The transaction will be completed in five months, and the amount reflects the stake’s fair market value, the partners said today in a joint statement.

Daimler announced plans last month to sell the holding in Rolls-Royce Power Systems under a put option agreed to with the London-based partner three years ago when they established the venture. The business was created from Daimler’s and Rolls- Royce’s joint 3.4 billion-euro purchase of German industrial- engine producer Tognum AG and the inclusion of the U.K. company’s Bergen ship and power-generator engine business.

“It’s an attractive price, and the cash inflow is slightly above expectations,” Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG, said by phone. “Financially, it’s a lucrative transaction, and Daimler secured long-term supply agreements for their engines.”

The venture, based in the southern German city of Friedrichshafen, employs 11,000 workers worldwide and, manufactures high-speed diesel engines for the marine, energy and defense industries.

‘Profound Partnership’

“We are pleased to reach an agreement with Rolls-Royce in such a short period of time,” Wolfgang Bernhard, who runs Daimler’s commercial-vehicle division, said in the statement. “This underlines the profound partnership established during the past years.”

Daimler rose as much as 1.8 percent to 65.13 euros and was trading up 1.1 percent at 1:29 p.m. in Frankfurt. The stock has gained 2.8 percent this year, valuing the vehicle maker at 69.2 billion euros. Shares of Rolls-Royce, the world’s second-biggest producer of aircraft engines, increased 0.9 percent to 1,018 pence in London.

Daimler Chief Executive Officer Dieter Zetsche, who has a goal for the Mercedes-Benz auto brand to surpass Audi AG and Bayerische Motoren Werke AG as the world’s largest maker of luxury cars by 2020, plans to use the proceeds from the disposal to invest in expansion. He’s rolling out 30 new vehicles by the end of the decade, a dozen of them with no predecessor.

Supply Accord

The carmaker will continue supplying smaller medium- and heavy-duty diesel engines to the venture under supply agreements that run until 2025. Daimler delivers about 18,000 engines a year to the company, which is already consolidated in Rolls- Royce’s books.

Final proceeds for Daimler may be different from the fair- market value published today, Florian Martens, a spokesman at the carmaker, said by e-mail.

This is the second time that Daimler has disposed of the German engine business. Daimler sold the company, then called MTU Friedrichshafen, for 1.6 billion euros to Stockholm-based private equity firm EQT Partners in March 2006 to pay for reorganizing Chrysler, when it still owned the U.S. carmaker. The engine maker was then publicly listed before the joint 2011 bid, which was spearheaded by Daimler.

“We have enjoyed an outstanding working relationship with Daimler and this agreement represents a good outcome for both of our companies,” Rolls-Royce CEO John Rishton said in the statement.