Daimler to Sell 50% Stake in Engines Venture to Rolls

Daimler AG, the world’s third-biggest maker of luxury cars, will sell a 50 percent stake valued at 1.9 billion pounds ($3.2 billion) in an engine joint venture to partner Rolls-Royce Holdings Plc. to invest in its automotive and truck businesses.

Daimler is selling the Rolls-Royce Power Systems holding under a put option agreed with the British manufacturer three years ago when the venture was established, the Stuttgart, Germany-based automaker said in a statement today.

Daimler and Rolls-Royce made a joint 3.4 billion-euro ($4.72 billion) bid for the German engine maker in 2011. The Friedrichshafen-based company manufactures high-speed diesel engines for the marine, energy and defense industries. As part of the deal, London-based Rolls-Royce contributed its Bergen engine business to the venture.

Daimler Chief Executive Officer Dieter Zetsche, who has a goal for Mercedes to surpass Audi AG and Bayerische Motoren Werke AG to become the world’s biggest maker of luxury cars by 2020, is rolling out 30 new vehicles by the end of the decade, a dozen of which will have no predecessor.

“Daimler needs to invest in new technologies in the auto segments,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler on the phone. “They need the money there more urgently than for a more peripheral business.”

Ample Liquidity

The stake’s value was 1.9 billion pounds on Rolls-Royce’s balance sheet as of Dec. 31. Final terms will be determined later. Europe’s largest-maker of commercial jet engines said today it has ample liquidity to fund the purchase from existing cash and borrowing facilities. The unit employs 11,000 people.

“Rolls-Royce Power Systems has added scale and capability to our reciprocating engines business,” John Rishton, Rolls-Royce CEO, said in a statement. “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. The automaker delivers about 18,000 engines a year to the company, 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.

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