Rolls-Royce says activist shareholder ValueAct has requested board seat: no decision taken
Rolls-Royce said the activist investment firm ValueAct has requested a seat on the FTSE-100 engineering group’s board, the Financial Times reported. The newspaper quoted Rolls-Royce, which said it has yet to make a decision on the request and needs to understand who ValueAct’s nominee is and whether giving a board seat to the investment firm would be acceptable to other investors.
ValueAct disclosed yesterday, 19 November that it had increased its shareholding in Rolls-Royce to 10%, as previously reported.
Roll-Royce has issued fie profit warnings since February 2014, the item noted, adding that the engineering group’s share price has fallen by close to 50% since the initial profit warning.
Some of Rolls-Royce’s 20 largest investors said they want the board to act with more urgency, the item said.
One of the shareholders said they support ValueAct and said the time has come to consider a turnaround strategy for Rolls-Royce.
ValueAct wants Rolls-Royce to dispose of its non-aerospace businesses, the article said. The investment fund has been sounding out leading shareholders in Rolls-Royce to put forward its strategy, the item added.
The report went on to quote one of Rolls-Royce's ten largest shareholders, who voiced the opinion that ValueAct’s comments were “sensible.” However, the shareholder added that he had yet to decide whether Rolls-Royce should concentrate its efforts on aerospace. The shareholder went on to say that ValueAct’s investment approach is in line with his firm and that he would welcome a board representative of the investment fund at Rolls-Royce.
Several other large shareholders also voiced their discontent with the Rolls-Royce board, the item said.
However, many of the investors cited by the report said Rolls-Royce are not under any immediate pressure to replace chief executive Warren East or chairman Ian Davis.
East is due to inform shareholders on Tuesday, 24 November of the progress of the review that he begun shortly after taking up the CEO job in July, according to the report.
East has until now argued against divesting Rolls-Royce’s marine engine business on the grounds that diversification is a necessary counterweight to cyclical nature of the aerospace industry, the item added.
Rolls-Royce’s share price closed 2p up at 541p in London yesterday, giving the company a market capitalisation of GBP 9.94bn (EUR 14.18bn).
Shareholders urge Rolls-Royce to give board seat to investor
Top shareholders are calling on Rolls-Royce to bring US activist investor ValueAct on to the board, to help in efforts to revive Britain’s premier engineering company.
The San Francisco-based hedge fund revealed on Thursday that it had doubled its stake in Rolls-Royce to 10 per cent, in a move that is expected to heighten the pressure on new chief executive Warren East for a change of strategy.
The leading manufacturer of passenger jet engines has lurched from profit warning to profit warning over the past two years, with the fifth only last week. The group’s shares have fallen almost 50 per cent since the first warning in February last year.
Rolls-Royce said it had received an official request for a board seat from ValueAct but no decision had yet been taken.
“We are leaving the option open,” said a company spokesman. “We need to understand who their nominee is, where they fit in and whether other shareholders would be happy with it.”
Several top 20 shareholders told the Financial Times that they were keen to see a greater sense of urgency at board level.
“We support ValueAct,” said one investor. “They have similar values to ourselves. They are medium to long-term investors that want to create more value at Rolls. With five profit warnings, it is time to think seriously about how the company can be turned round.”
The US fund, which is pushing for a divestment of the group’s businesses outside of aerospace, has been contacting Rolls-Royce’s top shareholders in recent months to explain its investment strategy and approach.
“We thought the things they were saying were sensible,” said a top 10 shareholder, though he stressed he had not yet come to a view on whether Rolls-Royce should focus solely on its core aerospace engine business.
“I would say that ValueAct is aligned with us in terms of their investment approach,” said another investor. “I would be happy to see them on the board. The group has a good track record and wants the same as other shareholders, which is better performance from Rolls.”
These views were echoed by several big shareholders who expressed frustration with a board which has lacked industrial expertise and failed to engage successfully with investors. “The need for help is self-evident,” said one big shareholder.
However, many said there was no immediate pressure for a change of chairman or chief executive. “This is a relatively new management team,” said the investor. “We would expect Warren East and the finance director to give leadership and tell us what steps they are taking and where they are going. This will take time.”
Much of this detail is expected at Tuesday’s investor briefing, when Mr East will give an update on the business review he has been conducting since arriving in July.
Mr East has so far resisted calls to divest the group’s marine engine unit, arguing that the group’s diversification is crucial to offset its exposure to the cyclical aerospace market. He has vowed to accelerate cost cutting in an attempt to boost profitability and cash generation
ValueAct became Rolls-Royce’s largest shareholder in July and has made a string of investments in some of the UK’s other engineering groups, including Smiths Group. It typically commits to holding its largest positions for several years, and pushes for substantial restructurings.
ValueAct, which began researching Rolls-Royce more than a year ago, believes the market is undervaluing future maintenance contracts for a new generation of aerospace engines. Rolls-Royce generates substantial profit from such service contracts.