US activist investor becomes top Rolls-Royce shareholder

01 Aug 2015


ValueAct Capital Partners LP, a US-based activist hedge fund, on Friday became the largest shareholder of British aero-engine maker Rolls-Royce Holdings Plc by acquiring a 5.44-per cent stake in the ailing company.

The move is expected to put pressure on Warren East, the company's new chief executive, who took the reins just a month ago.

In a regulatory filing yesterday, Rolls-Royce said that ValueAct has crossed the 5 per cent ownership threshold.

''We have frequent communication with all of our shareholders and meet with major investors on a regular basis. We look forward to engaging with ValueAct, just as we do with all investors,'' the company said.

ValueAct's stake now surpasses Aberdeen Asset Management's 5.16 per cent, BlackRock's 5 per cent and Invesco's 4.99 per cent, the other lead shareholders.

San Francisco-based ValueAct, founded in 2000 by veteran investor Jeff Ubben, is a hedge fund focusing on acquiring significant stakes in undervalued companies and works with its management to boost the performance.

Its top holdings include Valeant Pharmaceuticals Intl Inc, Microsoft Corp, Halliburton Co, Baker Hughes Inc, CBRE Group Inc etc.

ValueAct's assets have doubled over the past three years to $18 billion.

Market welcomed the news hoping for a change in business strategy for the beleaguered company which has given four profit warnings in the past 18 months.

Shares in Rolls-Royce jumped 6 per cent to close at 794 pence yesterday in London.

The stock had fallen to its three-year low of 718 pence earlier on Monday, a 44-per cent drop from the January 2014 high of around 1271 pence.

''ValueAct has been an investor before and we constructively engaged with them before. We welcome any investor who recognises the long-term value of our business,'' The Financial Times quoted a Rolls-Royce spokesman as saying.

On Thursday, the engine maker reported a 32-per cent plunge in underlying profit before tax for the first half of 2015 at £439 million compared with last year's £646 million. Revenue for the first six months dropped by 3-per cent to £6.3 billion.

Commenting on the results, East said: ''Despite the disappointment of our recent update, our second half outlook remains positive and full-year guidance for revenue, profit and cash issued on July 6th remains unchanged.''

The company's order book position was up £2.8 billion to £76.5 billion as at the end of June.

''The continued growth in our order book demonstrates the long-term demand for our innovative products and services, and underpins my confidence in the fundamental strength of our business,'' East said.

The company is on its course of restructuring to cut costs, and East believes that the diversification strategy announced earlier is ''broadly correct.''

There has been pressure from some investors to sell some of the company's weaker divisions, including marine engine and power systems.

ValueAct is known for its tactics of pressing for selling of the company where it invests. Last year, it influenced the sale of US oil services company Dresser Rand to Germany's Siemens. However, a sale of Rolls-Royce is considered difficult as the government also owns a 'golden share' in it.

According to some observers, the aggressive strategy of activist investors in Europe is not as successful as in the US.

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