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Rolls-Royce shares rise as activist stake fuels turnaround talk
[LONDON] Shares in British engineering company Rolls-Royce, under pressure after a run of profit warnings, rose for a second session on Monday on speculation it could speed up turnaround plans after an activist investor became its biggest shareholder.
US fund ValueAct wants Rolls-Royce to speed up cost-cuts in its aero engines unit and could in future push for it to divest its non-aero-engine businesses, according to a report in the Financial Times, citing people familiar with the fund's thinking.
Shares in Rolls-Royce were up 4.4 per cent at 829 pence by 1014 GMT, extending its advance to 11 per cent in two days. "We have engaged in constructive discussions with ValueAct over recent days and welcome them as an investor who recognises the long-term value of our business," a Rolls-Royce spokesman told Reuters.
ValueAct has acquired a 5.44 per cent stake in Rolls-Royce, regulatory filings showed on Friday, a day after the company reported a 32 per cent drop in half-year profits, having already slashed forecasts three times in nine months.
The most recent profit warning, which came days after Warren East took the chief executive post on July 2, was blamed on difficulties in its main aero engines business, and added to oil-price related declines already dragging on its marine unit.
Mr East said on Thursday he was focused on adding "pace and simplicity" to the restructuring plans underway at Rolls-Royce.
Accendo Markets analyst Augustin Eden said "the sound of cash savings and streamlining plans" was positive for the stock. "1065 pence (is) now a realistic target for shares given the broad agreement between East and 'softly softly' activist fund ValueAct as to where to redirect strategy," Mr Eden said.
The San Francisco-based hedge fund, which oversees roughly US$18 billion, touts itself as an investor which works constructively with management and the company's board to maximise returns for all shareholders.
ValueAct, which played a key role in shaking up Microsoft Corp's management, tends to become one of the largest independent shareholders at each of its core investments and has been known to seek board representation.
Prior to their recent rebound, Rolls-Royce shares had fallen to their lowest in three years. They are still down 18 per cent in the last 12 months, over which period Britain's blue chip FTSE 100 index has been flat.