19th Nov 2015 17:28
LONDON (Alliance News) - US activist investor ValueAct has doubled its stake in engines and power systems manufacturer Rolls-Royce Holdings PLC, according to a stock exchange filing Thursday, only a week after the FTSE 100-listed group issued a substantial warning about its outlook for 2016.
The move, which sees the San Francisco-based hedge fund increase its holding in the company to 10%, comes ahead of Rolls-Royce releasing details of its comprehensive restructuring programme, due to be presented on Tuesday.
Last week, Rolls-Royce severely downgraded its outlook for 2016, as ongoing problems facing its defence and marine business, hit respectively by tight government budgets and the downturn in the oil and gas industry, have been complemented by a sharp fall in margins in its aerospace aftermarket services business.
The civil aerospace business is suffering from Rolls-Royce transitioning over to the Trent 7000 engine programme from the Trent 700 programme and by lower activity in its regional and business jet segments.
Next week, the group will outline its plans to restructure the business to cope with the myriad pressures it currently faces. It will mark the first major strategic plans tabled by Warren East, installed as Rolls-Royce's chief executive back in July.
On Thursday, Rolls-Royce said it will look to save GBP150 million to GBP200 million a year, with the benefits to accrue in 2017, by simplifying its organisational model, streamlining its senior management teams, reducing fixed costs, and by adding pace and accountability to decision-making across the business, it said.
ValueAct bought its initial stake in Rolls-Royce in July, in the wake of a previous profit warning, become its biggest shareholder with a 5% stake. It is known for holding onto its stakes for a number of years and pushing for large scale restructuring at its investee companies.
A spokesman for Rolls-Royce confirmed to the Financial Times that the increased stake had been accompanied by a formal request by ValueAct to be given a seat on the Rolls-Royce board. The spokesman told the FT Rolls-Royce was "leaving the door open" and would need to assess "who their nominee is, where they fit in and whether other shareholders would be happy with it.
The FT, citing people familiar with ValueAct's thinking, said the group is pushing for Rolls-Royce to accelerate the transition to a new generation of engines, believing the market is undervaluing future maintenance contracts on these engines.
Rolls-Royce shares closed up 0.2% at 544.21 pence on Thursday.
By Sam Unsted; [email protected]; @SamUAtAlliance
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