Rolls-Royce Takeover Talks With Wärtsilä End With No Deal

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By Jussi Rosendahl and Karen Rebelo

HELSINKI/BANGALORE, Jan 9 (Reuters) – British engineering company Rolls-Royce made a takeover approach to Finnish ship and power plant engine maker Wartsila but the talks ended without a deal, the two companies said on Thursday.

Shares in Wartsila, with an enterprise value of around 7.3 billion euros ($9.9 billion), rose more than 8 percent after the companies confirmed the preliminary talks. The Finnish company said they had discussed an acquisition of the entire business rather than just its marine unit, as suggested by earlier reports.

By buying Wartsila, Rolls-Royce would have strengthened its marine business, which lowered its profit guidance in November. Rolls, the world’s second-largest aircraft engine maker, has in recent years benefited from soaring demand for more fuel-efficient engines for planes by Airbus and Boeing .

It was not clear why the talks with Wartsila were terminated or whether Rolls-Royce had offered a clear price for the business. Analysts said Wartsila was under little pressure from shareholders to abandon its independence after reporting steady profits in recent years.

Wartsila’s largest owner, with a stake of 22 percent, is a joint venture of Fiskars, which is backed by Finland’s Ehrnrooth family, and Investor AB, the investment arm of Sweden’s Wallenberg family. Fiskars said both companies remained long-term investors in Wartsila.

“Together with Investor AB we are a strong committed owner for Wartsila with a long-term horizon,” spokeswoman Anu Ilvonen told Reuters.

LEADER IN MARINE ENGINES

Wartsila’s third-quarter results beat market expectations, with the help of higher spending by its shipping clients.

In addition to ship engines, the 180-year-old company also sells power plant engines and maintenance services. In 2012, the group earned 481 million euros of operating profit with sales of 4.7 billion euros.

Pohjola Markets analyst Pekka Spolander said it made sense that Rolls-Royce had wanted the entire company as Wartsila’s services business depended on its engine sales, while its ship and power plant engines are made in the same factories.

“Wartsila’s units are so tightly linked together that it would be difficult to detach one piece from the company.”

He also noted that Wartsila had been known over the years for paying generous dividends, which might make its owners reluctant to give up their shares.

Wartsila’s status as a leader in marine engines made it an appealing target for Rolls-Royce, London analysts said.

“If you were Rolls-Royce, why would you not look at that opportunity?” said Liberum Capital analyst Ben Bourne.

“You could become the dominant player in both civil aircraft wide-body engines and also marine engines. Seems perfectly sensible at the right price.”

Rolls-Royce shares fell 1.1 percent, with analysts saying it was likely to remain on the look-out for acquisitions.

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