Rolls-Royce teams up with Daimler in engine maker bid

In what would be one of the biggest deals in its history, Rolls plans to combine Germany’s Tognum with its own Bergen business, which makes engines used across the maritime and power generation sectors.

Car giant Daimler already owns 28.4 per cent of Tognum, which is best known as a supplier of engines for ships and trains through its MTU subsidiary.

The offer to Tognum shareholders will see Rolls contribute its Bergen business into a 50:50 joint venture company set up with Daimler.

The UK firm’s chief executive Sir John Rose said the proposed deal represented a “significant opportunity” to harness the innovation, technology and engineering expertise of Rolls, Daimler and Tognum.

He added: “The complementary capabilities we are bringing together will provide us with a world leading proposition.”

Rolls and Daimler, which owns Mercedes-Benz and employs more than 260,000 people, provided details of their offer yesterday after announcing on Monday they were in “constructive discussions” with Tognum.

Derby-based Rolls said the proposed combination created a leading player in the industrial engines market, strengthening Tognum’s own position while establishing a broader range of products.

Rolls estimates the market is worth more than 30 billion euros (£25.8bn) a year and also boasts above average growth.

The Bergen business takes its name from the town on the west coast of Norway where it has been manufacturing engines since 1943.

It has around 900 staff and annual revenues in the region of 400 million euros (£344.5m).

Tognum, which employs 8,700 people and specialises in high-speed diesel engines and propulsion systems, generated revenues of 2.5 billion euros (£2.1bn) in 2009. It recently celebrated its centenary having started out as a maker of engines for airships in 1909.

MTU’s UK division supplies diesel and gas engines and systems to the marine, power generation and rail markets from its base in East Grinstead, West Sussex.

Andrew Gollan, an analyst at Investec Securities, said the proposed takeover represented a good use of spare capital, particularly as it expanded the group’s presence outside of civil aerospace markets.

“The combination between Tognum, Rolls-Royce and Daimler makes sense to us as the full product spectrum of diesel engines and gas turbines can be offered and global service networks can be combined,” BHF Bank analyst Stefan Augustin said. “Some savings in the supply chain and logistics are possible as well.”

Mr Rose added the goal was not to boost the bottom line with cost benefits. “The real prize is all about capturing the top-line growth and I have no doubt that this joint venture will do just that.”