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Tognum In Play?

Posted on March 7, 2011

Daimler AG has confirmed that it is in discussions with Rolls-Royce about the possibility of acquiring the majority of Tognum AG in equal shares. The joint effort by the two companies was first reported by Bloomberg Businessweek. In a statement following the report, Daimler said that “currently, constructive discussions with the Supervisory Board and Management Board of Tognum are being held.” It added that “no final decisions on increasing the equity interest have been made.” Gaining control of Tognum, which at one time was part of Daimler, would give the two companies one of the world largest manufacturers of high- speed diesel engines for the marine, energy and defense industries.

Daimler, which supplies Tognum with diesel engines, is already the company’s largest shareholder with a 28% holding. Daimler is said to be looking for acquisitions as cash from industrial units grew in 2010 by €4.7 billion to €11.9 billion euros. No final decisions have been made, Daimler and Rolls-Royce said. Tognum will “evaluate any proposal that may be received,” it said.

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. 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 $4.21 billion, or 25% of the company’s total.

Tognum has an interesting, though somewhat convoluted history. Daimler, the world’s biggest truck manufacturer, sold the company (then called MTU Friedrichshafen) for €1.6 billion to Stockholm-based private equity firm EQT Partners in March 2006. After an initial public offering in July 2007, Daimler bought a 22% stake in Tognum in April 2008, increasing the holding to more than 25% percent three months later.

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