Daimler and Rolls-Royce Group said they are considering a joint bid for Tognum, a German maker of heavy-duty engines used in tanks and ships, as they invest cash from booming sales.
Tognum surged as much as 29 per cent, the most in three and a half years, valuing the Friedrichshafen, Germany-based company at ¤3 billion ($4.2 billion). Daimler and Rolls-Royce are weighing the purchase of equal shares in the company and are in “constructive” talks with Tognum, they said in a statement.
Gaining control of Tognum, which Daimler used to own, would give the two companies the world’s second-largest maker of high- speed diesel engines for the marine, energy and defence industries after Caterpillar. Daimler, the world’s second-largest maker of luxury vehicles, has been piling up cash as demand for Mercedes-Benz cars soars.
“They’ve got a lot of cash and so most acquisitions will be earnings enhancing,” said Adam Hull, a London-based analyst with WestLB, who has an “add” rating on Daimler stock. “There is potential value at Tognum, but it could take years to realise synergies.”
Stock surges
Tognum rose as much as ¤5.30 to ¤23.80, the most since July 3, 2007, and closed at ¤22.78 in Frankfurt trading. Daimler gained 0.75 per cent to ¤48.59, while Rolls-Royce shares slipped 0.7 per cent to 600 pence in London.
Companies buying diversified machinery targets have paid a median multiple of 9.24 times earnings before interest, taxation, depreciation and amortisation during the last five years, according to Bloomberg data. Based on Tognum’s ¤306-million Ebitda for the fiscal year 2009, Rolls-Royce and Daimler may pay ¤2.83 billion for the company.
Daimler, which supplies Tognum with motors, is already the company’s largest shareholder. The auto manufacturer owns 28 per cent of Tognum, which was formerly a wholly owned subsidiary.
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Stuttgart, Germany-based Daimler is looking for acquisitions as cash from industrial units grew in 2010 by ¤4.7 billion to ¤11.9 billion. No final decisions have been made, Daimler and Rolls-Royce said. Tognum will “evaluate any proposal that may be received,” it said today.
Tanks, oil platforms
Tognum supplies heavy-duty diesel engines to power coast guard ships, tanks and generate electricity for offshore oil platforms. The company, which employs more than 8,700 people and has yet to report 2010 earnings, forecast revenue for last year of ¤2.55 billion.
As part of the deal, Rolls-Royce would integrate its Bergen diesel and gas engines line with Tognum, a person familiar with the negotiations said. Spokespeople for the companies declined to comment beyond the statement.
Rolls-Royce sells Bergen engines through its marine unit to power ships and via its energy division to generate electricity. Rolls-Royce’s marine unit had 2010 sales of £2.59 billion ($4.21 billion), or 25 per cent of the company’s total. The unit earned £332 million in operating profit last year. Rolls- Royce acquired Bergen when it bought Vickers Plc in 1999 for £576 million.
Change of guard
The deal would probably be Rolls-Royce’s largest, according to Sandy Morris, an analyst at Royal Bank of Scotland. The company has made only 15 purchases since 1998, according to data compiled by Bloomberg. The largest in that time was its Vickers purchase, which made Rolls-Royce the world’s biggest maker of marine propulsion equipment. It bought US turboprop engine company Allison Engine Co in 1995 for $525 million.