Rolls-Royce sits out merger boom with $1.7bn buy-back

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Rolls-Royce was ready to sit out a boom in industrial mergers, opting instead for a £1 billion (R18bn) share buy-back, the second-largest maker of jetliner engines said yesterday.

Rolls-Royce shares rose the most in two years after chief executive John Rishton said the UK firm would use proceeds from the sale of energy assets to Siemens to reward shareholders and that “no material acquisitions are planned”.

Rolls-Royce said in January that it had failed to buy Waertsilae, the maker of marine engines, while Daimler in April compelled it to buy full control of a diesel engine venture at a cost of e2.43bn (R36bn). Analysts said the stock rose yesterday because the chief executive ended speculation that $1.3bn (R14bn) from Siemens could fund a new push for Waertsilae.

Rolls-Royce advanced as much as 7.2 percent yesterday, the biggest jump since July 26, 2012, and traded 5.6 percent higher at £10.67 as of 10.41am in London, where the company is based. That pares the stock’s decline this year to 15 percent, valuing the business at £20bn.

“A potential acquisition of Waertsilae has been a major overhang on the Rolls-Royce share price since January,” JP Morgan Cazenove analyst David Perry said. “This is now removed, at least for the foreseeable future.”

Liberum analyst Ben Bourne said that Rolls-Royce would have been able to renew a takeover bid for Helsinki-based Waertsilae post-July, adding that the buy-back represented a “massive vote of confidence in their cash flow”, especially coming so soon after the transaction with Daimler.

General Electric, the largest maker of jet engines, has slipped 4.1 percent and United Technologies, parent of Pratt & Whitney, Rolls-Royce’s other main rival, is up 3 percent.

Rolls-Royce said in February that sales growth would pause this year for the first time in a decade as lower demand for defence equipment offsets healthy sales in civil aviation. The muted outlook was a rare miss for the company, which has rewarded investors with stock price gains in 10 of the past 11 years, coupled with steady earnings and dividend pay-outs. – Bloomberg


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