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Daimler, Rolls-Royce in $4.4 bn Tognum bid

Daimler, Rolls-Royce in $4.4 bn Tognum bid
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First Published: Wed, Mar 09 2011. 04 30 PM IST
Updated: Wed, Mar 09 2011. 04 30 PM IST
Frankfurt: Germany’s Daimler and Britain’s Rolls-Royce moved to ratchet their diesel operations up a gear with a $4.4 billion joint bid for industrial engine maker Tognum.
But while Tognum said there was a deal in principle, it warned that price was a sticking point, raising expectations that the powerful industrial duo of Daimler and Rolls-Royce would have to raise their €24 per-share offer.
Tognum’s shares had risen by 6% amid expectations that a higher bid will be needed to gain the approval of Tognum’s management.
Under Wednesday’s offer Rolls-Royce would expand its marine and diesel power business, while Daimler secures ties with a major buyer of its truck diesel engines, which are retooled by Tognum for other purposes.
The two hope to tap into a global market worth more than €30 billion a year that is growing at above-average rates.
However, car and truck manufacturer Daimler and engine maker Rolls-Royce clearly still have some work to do to win over Tognum’s management, which holds about 10 % of the company’s stock, to agree to the offer price.
Daimler chief executive Dieter Zetsche played down any differences over price and stressed Tognum’s overall willingness to do a deal.
“It’s very normal in such a transaction that you won’t expect a specific endorsement by the management as far as the value is concerned,” Daimler chief executive Dieter Zetsche said during a conference call.
“And I think that’s not their role. There is no disagreement but in the whole rest of the issues we have full agreement.”
Equinet analyst Holger Schmidt said the offer price could be raised as it was only 14 % above the €21 fair value of Tognum’s shares. WestLB had said earlier this week it expected a bid at €25-30 per share.
Gaining control
The offer is contingent on Daimler and Rolls-Royce gaining control of at least half of Tognum’s equity plus one share, a relatively low threshold considering the German carmaker already holds 28.4%.
“This is not about bottom line benefits from cost synergies. Clearly we are going to be able to drive productivity from the benefits of scale, leveraging our R&D,” Rolls-Royce chief executive John Rose said during the conference call.
“The real prize is all about capturing the top-line growth and i have no doubt that this joint venture will do just that.
Tognum is expected to report revenue growth of 10% IN 2011 and 8% in 2012, according to Thomson Reuters I/B/E/S estimates.
The companies said they plan to maintain current manufacturing sites and were confident their growth strategy will secure jobs.
As part of the deal, Rolls-Royce will contribute its Bergen marine and auxiliary-power engine business.
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First Published: Wed, Mar 09 2011. 04 30 PM IST