Rolls-Royce offloads ailing Marine Arm to Norway's Kongsberg

[LONDON] Rolls-Royce Holdings Plc agreed to sell its unprofitable ship-design arm to Kongsberg Gruppen ASA of Norway in what amounts to a state rescue for an oil-focused business by the country where most of its 3,600 workers are based.

The deal will have an enterprise value of £500 million (S$900 million), Rolls said in a statement Friday. The UK jet-engines giant revealed in January that it was looking at offloading the unit, though the agreement with Kongsberg doesn't include naval activities or the Bergen engines brand.

The disposal advances Chief Executive Officer Warren East's reboot of Rolls, where he last month announced 4,600 job cuts and a structural revamp in a bid to make the main aerospace business more dynamic. The marine arm has already closed sites and eliminated thousands of jobs after demand for its technology and services fell following a slump in the price of oil.

"This transaction builds on the actions we have taken over the last two years to simplify our business," Mr East said in the release. Kongsberg CEO Geir Haoy said the acquisition will make a the company "a more complete supplier to the maritime industry."

The sale includes propulsion equipment, deck machinery and automation and control systems, as well as a ship-design arm that's previously engineered more than 1,000 vessels for off-shore, cargo, passenger and fishing-vessel customers, Rolls said. Also thrown in is a business that develops remote and autonomous control of commercial ships. Those activities had a loss of £70 million last year on revenue of £817 million.

Rolls-Royce said it sees net proceeds of as much as £400 million from the deal, with a pro forma positive profit impact of £50 million.

The deal will increase the workforce by about 50 per cent at Kongsberg, which supplies technology used in maritime, oil and gas, fisheries and aerospace industries. The company will partly finance the transaction with a US$620 million rights offering in the fourth quarter. The Norwegian government, which owns 50 per cent of the company, has said it will take part in the issue, assuming parliamentary consent. A bond sale is also planned.

Mr Haoy said at a briefing in Oslo that the company is making the purchase at a point when the decline in offshore demand appears to have bottomed out.

"The maritime market is increasing slowly now," he said. "The newbuild market on the offshore side is of course very slow, but there is interest out there. I don't think the market will go further down."

Kongsberg Chief Financial Officer Gyrid Skalleberg Ingero added that combining the Rolls activities with its own marine business won't be enough in itself to revive earnings, and that the acquisition presents it with a "turnaround case."

The final purchase price will be adjusted based on the unit's cash, debt and working capital at the time the sale is concluded some time early next year.

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