Rolls-Royce may have to raise its offer to acquire Tognum, a German engine-maker, after a €3.2 billion (£2.7 billion) bid was dismissed by executives and at least one major shareholder today.
Although the offer already represents what would be the biggest acquisition in Rolls’s history, the firm’s employees and investors look set to demand a higher price.
Analysts said the joint bid with Daimler would give Rolls an opportunity to win a bigger slice of the heavy engine market, which is worth about €30 billion a year and rising at above-average rates, notably in emerging economies.
The bidders are offering €24 per share, a 30 per cent premium compared to Friday’s closing price.
Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg, said that given Tognum’s potential, “the offer represents a reasonable premium.”
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However, executives at the engine maker based in Friedrichshafen, southern Germany , who have a 10 per cent stake, said the price offered by Rolls and Daimler was too low to win their approval.
A major shareholder, speaking anonymously, also claimed the bid undervalued Tognum.
Dieter Zetsche, Daimler’s Chief Executive, said “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.”
In a statement, John Rose, Rolls’s chief executive, said: “The complementary capabilities we are bringing together will provide us with a world-leading proposition and will enable us to expand the business by developing a broader portfolio of integrated power systems and services for existing and new customers.”
Rolls’s marine division generated revenues of £2.6 billion last year and profits of £332 million, largely by supplying sophisticated natural gas engines to shipping fleets.
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Tognum, on the other hand, makes a more basic range of diesel engines for ships, agricultural machinery, cranes and other heavy equipment.
Under the deal, Rolls will combine its Bergen-based unit, which makes engines for ships and power generation, with Tognum.
Analysts said the operation offered Daimler an opportunity to make profitable use of its vast cash reserves by buying back a business which it owned until 2006.
In a statement, Daimler and Rolls-Royce said they would “launch a public tender offer for 100 per cent of the share capital of Tognum.”
They will create a “50:50 joint venture company” to make the bid, which is contingent on obtaining a majority of Tognum’s capital.