Tognum Calls Daimler, Rolls-Royce $4.54 Billion Takeover Bid Inappropriate

Tognum AG (TGM), a German maker of industrial engines, rejected a takeover offer from Daimler AG (DAI) and Rolls-Royce Group Plc (RR/), saying the bid valuing the company at about 3.15 billion euros ($4.54 billion) is too low.

Daimler and Rolls-Royce’s offer of 24 euros for each share is “not appropriate,” the Friedrichshafen, Germany-based company said in a statement today. Tognum still welcomes the approach from a business perspective, it said. The two suitors said their bid “fully and attractively values the company.”

Owners holding about 30 percent of the shares have rejected the joint bid, a person familiar with the situation said last week. Investors, including ING Groep NV (INGA), First Eagle Investment Management and Delta Lloyd Asset Management, have written to Tognum opposing the offer, the person said, speaking on condition of anonymity because the communication is private.

Daimler and Rolls-Royce started their public tender for the German engine manufacturer on April 6, pressing ahead even though the stock has been above the bid since March 9, when Tognum said it hadn’t agreed on a price. The prospective buyers are seeking more than 50 percent of the shares in the tender, which runs until May 18. Daimler has pledged its stake.

Tognum Stock Gains

Tognum rose as much as 35 cents, or 1.3 percent, to 26.30 euros and was up 0.4 percent as of 3:54 p.m. in Frankfurt trading, valuing the company at 3.43 billion euros. The bid is 30 percent higher than Tognum’s March 4 closing price, the last trading day before the prospective buyers expressed interest.

“Rolls-Royce and Daimler do not share Tognum’s view that the offer price is not appropriate,” the companies said in a statement sent by e-mail. “The offer we have made has a compelling industrial logic.”

ING and First Eagle are Tognum’s biggest shareholders after Daimler, holding more than 12 percent of the shares combined, according to data compiled by Bloomberg. Daimler, which owns 28.4 percent, has said prior to today’s announcement that it was sticking to the bid.

Daimler’s stake allows it to block efforts by other potential suitors. Shareholders with more than 25 percent of any German company have the power to veto major strategic moves.

‘Gut Reaction’

“It’s all very well for the company to turn it down, but they’ve already got a chunk in the bag in terms of the holdings Daimler has,” said Howard Wheeldon, senior strategist at BGC Partners in London. “It’s a gut reaction, but I expect they will continue to pursue it.”

Gaining control of Tognum, which Daimler once owned, would give the two companies the world’s second-largest maker of high- speed diesel engines for the marine, energy and defense industries after Caterpillar Inc. London-based Rolls-Royce, whose engines power Airbus SAS and Boeing Co. (BA) planes, plans to integrate its Bergen business, which makes gasoline and diesel engines for ships and power generators, with Tognum.

Daimler, the maker of Mercedes-Benz cars and trucks, sold Tognum, then called MTU Friedrichshafen, for 1.6 billion euros to Stockholm-based private equity firm EQT Partners to help pay for reorganizing Chrysler in March 2006, when it still owned the U.S. carmaker.

After an initial public offering by Tognum at 24 euros a share in July 2007, Daimler bought a 22 percent stake for 585 million euros in April 2008, increasing the holding to more than 25 percent three months later.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Andreas Cremer in Berlin at acremer@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net

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