Daimler to sell its 50% stake in engine venture to Rolls-Royce

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Bloomberg / March 8, 2014

Daimler will sell its 50 percent stake in its Rolls-Royce Power Systems engine joint venture, valued at US$3.2 billion, to Rolls Royce Holdings. Daimler will invest the proceeds in its automotive and truck businesses.

Rolls-Royce Power Systems AG with its headquarters in Friedrichshafen, Germany, is a specialist for large engines, propulsion systems and distributed energy systems, and previously operated under the name of Tognum AG. The company develops, produces and services engines, propulsion and energy systems marketed under the MTU and the MTU Onsite Energy brands. The company manufactures high-speed diesel engines for the marine, energy and defense industries.

Daimler is selling the Rolls-Royce Power Systems holding under a put option agreed with Rolls Royce Holdings three years ago when the joint venture was established.

Daimler and Rolls-Royce Holdings made a joint US$4.72 billion bid for the German engine maker in 2011. As part of the deal, Rolls-Royce Holdings contributed its Bergen engine business to the venture.

Daimler Chief Executive Officer Dieter Zetsche, who has a goal for Mercedes to surpass Audi and BMW, is rolling out 30 new vehicles by the end of the decade, a dozen of which will have no predecessor.

The stake’s value was 1.9 billion pounds on Rolls-Royce’s balance sheet as of December 31.

Final terms will be determined later. Roll Royce, Europe’s largest-maker of commercial jet engines, said today it has ample liquidity to fund the purchase from existing cash and borrowing facilities. Rolls-Royce Power Systems employs 11,000 people.

“Rolls-Royce Power Systems has added scale and capability to our reciprocating engines business,” said John Rishton, Rolls-Royce CEO. “It has outstanding technology, operates in long-term growth markets and has proved a valuable addition.”

Daimler will continue supplying 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 Rolls-Royce Power Systems, which is already consolidated in Rolls-Royce’s books. The two owners aim to complete the transaction within the next six months.

“We are now taking the next logical step and are transferring our shares to our joint venture partner,” Zetsche said in today's statement. “All parties involved will benefit from this move.”

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.