Rolls-Royce to buy Daimler stake of power systems unit with cash, borrowing

Fri Mar 7, 2014 1:33pm EST
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By Li-mei Hoang

LONDON (Reuters) - British engineering company Rolls-Royce (RR.L: Quote) said on Friday it would fund the purchase of German carmaker Daimler's (DAIGn.DE: Quote) 50 percent stake of a jointly owned power systems company using cash and some borrowing.

Rolls-Royce said it had ample liquidity to take full ownership of the three-year-old joint venture Rolls-Royce Power Systems with Daimler's holding estimated to be worth 1.9 billion pounds ($3.18 billion).

The company said the transaction was expected to be completed within the next six months subject to the usual regulatory approvals.

Jefferies analyst Sandy Morris said the surprise move could add up to 5-6 percent to its shares when they open on Monday.

"The using of cash and borrowing facilities to pay for this clearly means that the related interest charge is modest and therefore the enhancement to Rolls-Royce's earnings is probably 5 or 6 percent and a useful little fillip," he said.

"Having full control over a business that has significant potential synergies with other part of Rolls-Royce gives you a free hand and that has got to be good," he added.

The 50-50 joint venture contains the assets of German engine maker Tognum, which Daimler and Rolls-Royce bought in 2011 for 3.4 billion euros.

Tognum makes diesel and gas turbine engines for tanks, armored vehicles, generators, cranes, trains and ships.   Continued...

Journalists work next to the Rolls Royce engine of an Airbus A350 on display at the Singapore Airshow February 11, 2014. REUTERS/Edgar Su