Essilor Studying Potential Acquisitions, CEO Tells Investor


Essilor Studying Potential Acquisitions, CEO Tells Investor
2015-08-01 09:52:33.509 GMT


By Tara Patel
(Bloomberg) -- Essilor International SA will complete a
number of small and medium-sized operations around the world
this year, CEO Hubert Sagnieres tells Investor in an interview.

* Co. has identified larger targets that could be of interest
in the future: Sagnieres
* Co. has financial means for development: CEO
* NOTE: Essilor, Hoya Said to Weigh Bids for Lens Maker
Rodenstock NSN NO84GY6JIJUW<GO>


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To contact the reporter on this story:
Tara Patel in Paris at +33-1-5365-5058 or
tpatel2@bloomberg.net

(Barron's) GKN Is a Bargain in Fragile Euro Stock Market

GKN Is a Bargain in Fragile Euro Stock Market

Dow Jones Global Indexes|Global Stock Markets
European equities last week remained at the mercy of global events.


No sooner had they been lifted by hopes of a solution to Greece’s financial problems than fresh concerns over the strength of the Chinese economy knocked them down again.
The Stoxx Europe 600 index fell more than 2% on Monday after Chinese equities suffered their biggest one-day fall since early 2007. It steadied midweek, though European investors remained on tenterhooks, and the index ended the week up 0.5%.
Tim Gregory, head of global equities at London’s Psigma Investment Management, says the recent performance of individual stocks has little to do with fundamentals or management skills.
Apart from China, European stocks are currently hostage to other international factors: Greek concerns continue to rumble in the background and the prospect of near-term U.S. interest-rate hikes are also keeping investors on their toes. The Federal Reserve’s latest policy statement didn’t give a clear indication of when rates may rise.
“As a fund manager you don’t know whether to roll with the stocks that have been doing well, or shift into the ones that have taken a beating and currently look undervalued,” says Gregory, whose firm manages $4 billion in assets.


Oil companies, basic materials, and industrial businesses are currently among the worst-performing sectors. While their low valuations may tempt following recent declines, their relatively weak earnings performance suggests they may not perform well in the short term, but solid, well-run firms could do better over a longer period.
Meanwhile, sectors that have had a good run lately–such as telecom, health-care, and consumer stocks–may not have much upside left and will need to post strong earnings to justify higher ratings.
Part of the problem is that it’s too soon to be sure of how deep China’s woes may be. “[Is] what we saw recently in the Chinese stock market a bit of a sideshow to actual economic developments in China, or is it going to have a serious effect on spending?” Gregory asks.
Of biggest concern would be a material slowdown in the Chinese automotive sector where demand has helped drive a strong performance for automotive-related companies until recently. “The European car industry has been doing much better, but significant additional growth has come from China,” he notes.
Against that difficult backdrop, Gregory says there are still bargains available for a stock picker.


One such company is British aerospace- and auto-parts maker GKN (ticker: GKN.UK), which last week buoyed investors with its deal to buy Dutch company Fokker Technologies Group for 706 million euros ($779.98 million). Fokker is an aerospace specialist that manufactures aircraft systems and provides aircraft-support services.
The move boosts GKN’s airframe component activity and opens access to the aircraft wiring business. It also increases the company’s exposure to China’s expanding aerospace market. GKN expects the deal to enhance earnings as early as this year.
“It’s a very good deal,” Gregory says. “Buying a euro-based company in sterling is much cheaper now for a British company than it would have been even a few months ago,” he says. At just over 10 times earnings, the price was good and the purchase proves that GKN is financially strong and on the right strategic path. GKN on Tuesday posted first-half sales of £3.62 billion ($5.63 billion) while earnings-per-share on continuing operations were 9.8 pence. Its stock rose 7.3% on the day the deal was announced.
The shares closed on Friday at 319 pence, up 7% on the week but still well below the 386 pence they reached in February. Gregory reckons they could soon be trading above 360 pence again following the Fokker deal.
Despite slowing growth in the Chinese auto sector, Gregory says businesses involved in new product launches there are likely to fare best. “GKN management believes it is in a strong position in that respect. I talked to a Chinese fund manager this week who was of the opinion that the auto market was slow because consumers are waiting on a number of new products due in early 2016,” he says.
The company’s real strength is in aerospace where GKN has bulked up through mergers and acquisitions. Recent deals include its purchase of Volvo’s (VOLVB.Sweden) aircraft-engines business three years ago, and Airbus’s (AIR.France) manufacturing operations in Filton, England.
Both deals have fed into growing demand for aircraft parts as competing commercial aircraft makers Boeing (BA) and Airbus have boosted production.
Panmure Gordon analyst Sanjay Jha last week upgraded GKN to Buy with a 375 pence target price, about 18% above last week’s level. GKN’s Land Systems unit, which supplies engineered power management products and systems to the agricultural and other sectors, has fared particularly well.
“The acquisition of Fokker will also be seen favorably by the market as it fills a strategic hole in GKN’s aerospace strategy,” he says.
DIGBY LARNER, who is based in Paris, is a Wall Street Journal news editor for Europe, the Middle East, and Africa

E-mail: editors@barrons.com

WSJ : Exxon’s M&A Edge Over Chevron Amid Low Oil Prices

Exxon’s M&A Edge Over Chevron Amid Low Oil Prices
Pioneer Natural Resources and Hess could be targets

“We remain focused on what we control.”

Exxon Mobil ended a typically dry quarterly results presentation Friday by summing up not only its own culture but also the mantra of all the majors amid a slump in the key variable they can’t manage: oil prices.

Investors run the risk of cash distributions—Big Oil’s big selling point—being squeezed. The flip side, at least for Exxon, is the rising probability of big acquisitions.

With both Exxon’s and Chevron’s earnings misses capping off a week of results from the majors, trust is fraying. Exhibit A: trailing dividend yields. At over 3.5%, Exxon’s is the highest since the 1999 merger with Mobil.

This is striking when you consider Exxon’s rock solid dividend record and credit rating. And indeed, Exxon looks safer than peers. Chevron yields 4.8%, while Royal Dutch Shell and BP are both at about 6.5%.

The problem is cash flow. Over the six years to 2008, the big four had an aggregate $130.7 billion left over after deducting capital expenditure and dividends from operating cash flow, according to S&P Capital IQ. Net debt to capitalization fell to 2% from 14%.

In the following six years, aggregate operating cash flow was actually $60 billion higher. But a jump in spending left just $12 billion after investment and dividends. Leverage rose to 14%. In the 12 months through June, investment and dividends outpaced operating cash flow by $29 billion.

The most notable casualty so far: share buybacks. These have gone to zero for Chevron, Shell and BP; even Exxon has cut its projected third-quarter amount to just $500 million—demonstrating the pro-cyclicality of buybacks. Remarkably, refiner Valero Energy, which reported blowout results this week, could end up spending more on buybacks this quarter than Exxon.

Exxon is, at least, still raising its dividend. The same can’t be said for Chevron. The company is at pains to emphasize its commitment to dividends, but the second quarter’s payment per share was flat on the previous quarter and a year before.

Chevron’s big problem is that, being close to completing several megaprojects, spending hasn’t fallen quickly enough. Its 2017 targets for production and covering its dividend from cash flow, outlined in March, are predicated on $70 oil. Absent that, Chevron is leaving open the option of disposals to defend the dividend—but that, in turn, could put the production target at risk. Chevron’s disposals in the trailing four quarters of roughly $9 billion were highest in the group.

Exxon is in relatively better shape. It is starting to see production come through already from earlier investments, with output rising 3.6%, year over year, in the second quarter.

The timing still isn’t great: Falling energy prices wiped more than 10 times the amount off Exxon’s upstream earnings in the quarter than higher production added back. And growth prospects beyond 2017 are murkier, especially with sanctions constraining progress in Russia.

This is where Exxon can actually take advantage of low oil prices. While its stock is down 19% in the past year, the U.S. exploration and production sector has fallen 47%.

Exxon insists it takes a global approach when looking at acquisition opportunities. But the U.S., with its large resource base and lower political risk, is a natural hunting ground. Pressed by Paul Sankey of Wolfe Research on Friday’s call, Exxon conceded the Permian shale basin—where it has an existing position—has a “very diverse” ownership structure. And fragmented markets are made for consolidation by majors. Meanwhile, on Chevron’s call, upstream chief Jay Johnson noted a very competitive U.S. oil-field services market meant even E&P firms smaller than the majors could drive down costs—an attractive proposition in straitened times. Indeed, Exxon said its U.S. onshore business has achieved 30% cost reductions from their 2014 peak.

Potential U.S. targets, by Mr. Sankey’s reckoning, include Pioneer Natural Resources and Hess. Without a rebound in oil prices, it looks like Chevron may be selling even more assets. Exxon, though, looks more likely to go shopping.

WSJ : Uber Valued at More Than $50 Billion

Uber Valued at More Than $50 Billion
Ride-sharing app, which just closed a funding round, reaches mark faster than Facebook

Uber Technologies Inc. has closed a new round of funding valuing the five-year-old ride-hailing company at close to $51 billion, according to people familiar with the matter, equaling Facebook Inc.’s record for a private venture-backed startup.

Uber raised close to $1 billion in the round, one of the people said, bringing its total funding to more than $5 billion. The San Francisco company initially had briefed investors on a plan to raise between $1.5 billion and $2 billion in the round, The Wall Street Journal reported in May

Investors in the latest round include Microsoft Corp. and the investment arm of Indian media conglomerate Bennett Coleman & Co., another person familiar with the matter said, as Uber seeks allies to help bolster its technology and expand in large markets outside the U.S.

An Uber spokeswoman said the company had filed a document in Delaware in May to authorize the latest funding round. “We aren’t commenting on additional speculation,” the spokeswoman said.

Microsoft declined to comment. A Bennett Coleman executive didn't immediately respond to a request for comment.

Uber’s valuation has now reached the high-water mark set by Facebook in 2011, when Goldman Sachs offered wealthy clients outside the U.S. shares of the social network that implied a $50 billion valuation, not including the money raised.

At the time, Facebook was nearly seven years old. Uber just turned five.

Uber’s faster rise to $50 billion reflects its aggressive global expansion into more than 300 cities and growing popularity ferrying millions of riders daily.

In addition, Chief Executive Travis Kalanick has proved one of Silicon Valley’s most adept fundraisers. Uber’s investors include Qatar’s sovereign-wealth fund; multiple hedge funds; Amazon.com Inc. founder Jeff Bezos; and the venture arm of Google Inc.
Not all those deals have gone smoothly. Google invested more than $250 million in 2013 and has helped Uber add new users by promoting ride-sharing in its popular mobile maps. But friction has emerged between the two companies in recent months as Uber has taken steps to compete with Google in self-driving cars

Uber’s latest financing vaults it past Chinese smartphone maker Xiaomi Corp. as the world’s most highly valued private startup. Xiaomi attained a $46 billion valuation last December.

Microsoft is one of a handful of large software companies with experience in online maps, an area where Uber has looked to develop its own capabilities. In a deal announced in June, Uber acquired assets related to street imaging and 3-D views used by Microsoft’s Bing Maps service and offered jobs to roughly 100 of its workers.

For its latest funding, Uber also sought out large media conglomerates outside the U.S., in regions where the company is trying to build grass roots support for its battles with traditional taxi operators and local regulators. Times Internet, which runs investments and oversees websites for Bennett Coleman, contributed to the new investment round after taking a stake in Uber earlier this year as part of a marketing deal.

Separately, Uber said this week that it would invest $1 billion in India in the next nine months. The company has faced regulatory roadblocks in the country since December, when the app was banned after a woman said she was raped by an Uber driver. The driver denies wrongdoing and is currently on trial.

Last year, Uber said it raised $600 million from Baidu Inc., China’s leading search engine. That alliance has helped Uber compete with homegrown Chinese rival Didi Kauidi Joint Co., which has the support of China’s top two Internet companies, Alibaba Holding Group Ltd. and Tencent Holding Ltd.
Uber also has held talks with investors to raise funds for UberChina, a separate unit of the business funded by local investors. That round could be closed as soon as next week, the person familiar with the situation said.

Uber hasn't publicly discussed plans for an initial public offering, but it has sold convertible debt to investors whose value is tied in part to a future IPO price. Uber also negotiated a $2 billion credit line with a group of big banks, a move often made by companies planning to go public, the Journal has reported.

>>>Weekly Market Update: Global Growth Con

Weekly Market Update: Global Growth Concerns Linger, Fed Still Open to September Liftoff


US equity markets recovered some ground this week and the Shanghai Composite appeared to stabilize after another round of government pledges. The DJIA is looking a little shaky, weighed on by pain in the commodities related industrials, but the S&P500 is within sight of the recent all-time highs, notching a 1.2% gain on the week. Despite pledging hundreds of billions to prop up its market, China's stocks sunk another 8.5% on Monday - the biggest one-day drop since 2007 - drawing another promise from the China Securities Finance Corporation(CSFC) to boost its stock purchases. The FOMC statement kept expectations of a September rate hike alive without pre-committing, while Thursday's upward revisions to past core PCE readings and a hotter than expect initial Q2 core PCE print only supported that notion. Short term US Treasury yields backed up to levels not seen since early June as traders rotated into the US long bond, likely on the belief that rates can only rise very gradually under the current subdued growth outlook. The US Q2 employment cost index threw markets a bit of a curve ball on Friday, unwinding some of the week's earlier bets the Fed was on the precipice of raising rates for the first time since 2006. The prospect of a Puerto Rico bond default over the weekend also dampened sentiment.

The semantic tweaks made to the FOMC statement released on Wednesday did not include any overt signals that rate hikes were imminent. However, Fed watchers characterized several minor changes as a hint that Fed officials see the economy closer than ever to full employment. For several meetings, the language talked about the need to see "additional" improvement in the labor market, but this was changed to "some" additional improvement. A related section stated that slack in the labor market had diminished, striking an earlier qualification that slack had diminished "somewhat." On the inflation front, the statement dropped reference to "stabilized" energy prices, given that oil prices are retesting their spring lows, and it retained language that said inflation is running below the Fed's 2% objective. The next FOMC meeting is scheduled for September 16-17.

The slowdown seen in the US Q2 employment cost index (ECI) had a broad impact on markets on Friday and made some question the viability of a September Fed rate hike. The report indicated that labor costs decelerated sharply in the quarter (+0.2% v +0.6%e), reversing Q1's +0.7% figure and delivering the lowest rate of growth in 30 years. The Q1 reading suggested wage growth had picked up perceptibly from the stagnant trend of earlier years, holding out the hope for accelerating inflation and spending, with obvious implications for monetary policy. Analysts noted that some of the slowdown could be a reversal of a seasonal effect: the uptick in the first Q1 was concentrated in incentive-pay occupations, where bonuses and commissions can be volatile, and this pop reversed itself in the second quarter. Analysts caution that the adjusted data also rose in Q1 and decelerated in Q2. Commenting after the ECI release, Fed hawk Bullard said he was not concerned by the data, and that a September rate hike can't be ruled out.

The first reading of Q2 US GDP was just fine, with the headline figure of +2.3% a hair below expectations but much better than the revised final Q1 figure of +0.6% (which itself was revised up from the -0.2% final report in June). Personal consumption beat expectations at +2.9%, while the export figure grew to +5.3% from -5.9% in the final Q1 report. Friday's GDP report was the first to include new methodology meant to correct the tendency to slightly underestimate growth in Q1 and overestimate growth in Q3, due to issues in measuring military spending and consumer services. Under the new approach, the government has found that the US economy grew somewhat slower in 2012-14, at an average of +2.0% a year instead of +2.3%. The slowest recovery since the end of World War II is now even weaker than previously believed.

US consumer confidence was rattled by the Chinese slump and the Greek crisis in July, as the month's reading fell to the lowest level since last September and widely missed expectations (90.9 v 100e). Current conditions was still looking relatively healthy at 107.4, but the outlook for next six months dropped sharply to 79.9 this month from 92.8 in June.

Fed rate policy deliberations drove USD-related currency trading. The weakening dollar trend seen last week peaked on Monday as EUR/USD touched 1.1130 and USD/JPY retested 123, but the steady tone in the FOMC release and firming expectations for a September rate hike helped EUR/USD dip back below 1.0900 and the USD/JPY test seven-week highs above 124.56 on Thursday. On Friday, the ECI report threw a wet blanket on the notion of a September rate hike, pushing EUR/USD to test toward the week's high of 1.1130 and USD/JPY back below 124. Meanwhile, the commodity crash continued without respite: WTI crude wallowed at four-month lows around $48 and Brent sank to fresh six-month lows below $53. One-year lows were seen in gold, copper and certain softs, as well as the commodity-related Aussie and Canadian currencies.

Just when markets considered Greece fixed for now, there were rumblings of a new political crisis in Athens. Press reports suggest that EU officials are pressing the government to agree to more measures than were included in the preliminary package earlier this month, prompting pushback from PM Tsipras. He has scheduled a Syriza party summit in September to discuss the bailout with party rebels and is threatening snap elections if future votes on the bailout go against the government. Separately, the government said the Athens Stock Exchange would reopen for trading next Monday after a five-week shutdown.

The impact of falling oil prices on the energy industry emerged as a major theme as a barrage of S&P500 companies reported this week. Oil majors like Chevron and Exxon reported painful results, while pure play refiners capitalized on low input costs. Exxon's profits fell by 50% y/y while Chevron's slump was even more pronounced given a host of one-time charges. Surging profits at the majors' downstream operations, which benefit from lower crude prices, did not make up for the collapse in upstream operations from the slump in prices. ConocoPhillips managed to top greatly diminished expectations. Both Exxon and Chevron maintained their capex budgets unchanged, but Exxon also said it is seeing a "downward vector" on the capex figure, while Chevron said if current oil prices persist, capex would fall in 2016 and 2017. Conoco further trimmed its own FY15 capex budget. Refiner Valero roundly beat both earnings and revenue targets, with solid gains seen in operating income as cheaper crude doubled the firm's margins. Occidental Petroleum missed revenue expectations as total sales fell more than 30% y/y.

Social media names Facebook and Twitter were both punished for missing consensus user growth targets. Both firms exceeded revenue and earnings targets: Facebook's revenue gained about 40% y/y and Twitter's surged 63% y/y. Traders ignored the massive revenue growth and zoomed in on FB's lower-than-expected 17% y/y growth in daily active users and TWTR's subpar 12% y/y growth in monthly active users.

Allergan reached a deal to sell off its generics unit to Teva for $40 billion in cash and stock. The deal is divided between $33.8 billion in cash and approximately $6.8 billion of Teva's shares, giving Allergan a nearly 10% stake in Teva. With the Allergan transaction, Teva also withdrew its spurned, unsolicited $37 billion offer to acquire Mylan, clearing the field for Mylan's effort to woo Perrigo. In other merger news, Belgian chemical group Solvay agreed to buy Cytecfor $5.5 billion, giving it a bigger presence in the US lightweight materials business. Coca-Cola Enterprises stock was up double digit percentages on Friday after a report that it could combine its operations with other bottlers in Spain and Germany.

On Monday, Chinese stocks experienced their worst one day rout in eight years, falling 8.5% on jitters about the government withdrawing some of its recent measures to prop up the market. The fear was exacerbated by the unexpected y/y decline in June industrial profits data. In response to spooked investors, officials insisted that they had not withdrawn from the stock market and that they would continue efforts to stabilize sentiment. The PBoC conducted another CNY20B in open market operation liquidity injections for the week, while government reform efforts aimed at slowing the build-up of leverage in the financial system contributed to total margin debt falling to its lowest levels since March. Nonetheless, the Shanghai Composite broke a string of 3 weeks of gains with a 10% decline.

>>> US Close Dow-0.32% S&P-0.22% Nasdaq-0.01% Russell+0.54%

Closing Market Summary: July Ends on Cautious Note

The stock market ended July on a cautious note with the S&P 500 shedding 0.2%. Despite today's downtick, the benchmark index added 1.2% for the week, ending the month higher by 2.0%. Meanwhile, the Nasdaq Composite ended flat, locking in a 2.8% gain for July.

Equities held modest gains at the start thanks to a pre-market jump in the futures market after it was reported that the Employment Cost Index increased just 0.2% in the second quarter while the Briefing.com consensus expected an increase of 0.6%. The lack of strong wage growth was viewed as an argument in favor of the Federal Reserve delaying its first rate hike, which gave a boost to equity futures and Treasuries. The 10-yr note surged immediately after the report was released, and remained near its high into the close, sending the benchmark yield lower by six basis points to 2.20%.

Meanwhile, stocks climbed during the first three hours of action, but relative weakness among several cyclical sectors acted as a drag on the broader market, pulling the S&P 500 to new lows during the afternoon.

Most notably, the energy sector tumbled 2.6%, widening its July decline to 7.8% after Dow components Chevron (CVX 88.48, -4.55) and ExxonMobil (XOM 79.21, -3.80) reported disappointing results. The two names posted respective losses of 4.9% and 4.6% while crude oil slid 2.9% to $47.12/bbl. For the month, the energy component plunged more than 21.0%, returning to its January low.

Elsewhere among growth-sensitive sectors, financials (-0.4%) and technology (-0.5%) lagged throughout the day with high-beta chipmakers pressuring the technology sector. The PHLX Semiconductor Index lost 1.2%, ending the month lower by 5.0% while KLA-Tencor (KLAC 53.05, +0.99) bucked the trend, rallying 1.9%, in reaction to a bottom-line beat.

Typically, underperformance in the technology sector tends to be consistent with weakness in the Nasdaq, but the tech-heavy index outperformed today thanks to gains in the biotech space. The iShares Nasdaq Biotechnology ETF (IBB 382.53, +3.73) gained 1.0% after Amgen (AMGN 176.59, +4.90) beat estimates and raised its guidance. Shares of AMGN spiked 2.9% while the broader health care sector (+0.5%) ended among the leaders, drawing secondary support from the likes of Molina Health (MOH 75.28, +7.28), and Universal Health Systems (UHS 145.23, +3.79) after the two reported better than expected results.

Similar to health care, the three other countercyclical groups settled ahead of the broader market. The utilities sector spiked 1.0% while consumer staples (+0.1%) and telecom services (+0.1%) posted slimmer gains.

Today's participation was ahead of recent averages with more than 915 million shares changing hands at the NYSE floor.

Economic data included Employment Cost Index, Chicago PMI, and Michigan Sentiment:
  • Employment costs rose 0.2% in Q2 2015 after a 0.7% increase in the first quarter while the consensus expected an increase of 0.6% 
    • That was the smallest increase in employment costs since the index was created in 2001 
  • The Chicago PMI increased to 54.7 in July from 49.4 in June while the consensus expected an increase to 54.7 
    • The reading represented the first increase in three months 
    • There was a large improvement in production as the related index increased to 61.8 in July from 49.8 in June. The production gain came on the heels of strengthening growth in the new orders index, which rose to 58.5 from 51.7 
  • The University of Michigan Consumer Sentiment Index was revised down to 93.1 in the final June reading from 93.3 in the preliminary report while the consensus expected an increase to 94.0 
    • The index is down from 96.1 in June, which was the best reading since January 
    • The Expectations Index was revised down from 85.2 in the preliminary reading to 84.1 while the Current Conditions Index was revised up to 107.2 from 106.0
On Monday, June Personal Income/Spending data and Core PCE Prices will be reported at 8:30 ET while June Construction Spending and July ISM Index will both be reported at 10:00 ET.
  • Nasdaq Composite +8.3% YTD 
  • S&P 500 +2.2% YTD 
  • Russell 2000 +2.8% YTD 
  • Dow Jones Industrial Average -0.7% YTD 

(FTI) Chinese investors compete to buy aircraft leasing group Avolon



http://www.ft.com/intl/cms/s/0/3680ca44-379e-11e5-bdbb-35e55cbae175.html?siteedition=intl#axzz3hV5nsCa0
Unsolicited offer understood to be from AVIC Capital , a subsidiary of Aviation Industry Corp of China. Made a tentative move to buy AVOL a year ago
Chinese investors compete to buy aircraft leasing group Avolon
2015-07-31 19:48:08.840 GMT


Vincent Boland in Dublin and Peggy Hollinger in London
July 31 (Financial Times) -- Two Chinese investors are
going head to head in a battle to buy Dublin-based aircraft
leasing group Avolon in a deal that could value it a...

The full story is available on Bloomberg to Financial Times
corporate subscribers. <a href="entreq:43358">Click here</a> to receive details on pricing.

FT : US activist ValueAct takes stake in Rolls-Royce


A US activist hedge fund has become Rolls-Royce’s top shareholder in a move likely to increase pressure on the British aerospace engine maker to improve its performance.
ValueAct, a San Francisco-based hedge fund, said in a regulatory filing that it has built a 5.44 per cent stake in Rolls Royce

The arrival of the hedge fund on Rolls-Royce’s share register comes at a particularly vulnerable time for the company, just three weeks after its fourth profit warning in 18 months and as new chief executive Warren East takes up his post.
ValueAct, founded by the veteran investor Jeff Ubben, is known for pressing management teams from behind the scenes to refocus their companies, shunning the more boisterous public admonishments of other American activists.
Rolls-Royce said it would be meeting with ValueAct in the coming weeks, and that it had worked with the hedge fund in the past.
“ValueAct has been an investor before and we constructively engaged with them before, “ said a Rolls-Royce spokesman. “We welcome any investor who recognises the long-term value of our business. We look forward to engaging with ValueAct, just as we do with all investors.”
The investment comes as Rolls Royce investors had become increasingly exasperated at a string of profit warnings, and with Mr East pledging to turn its fortunes around. The shares have fallen 25 per cent over the last year.
Rolls Royce has already been criticised by the US hedge fund Sequoia which earlier this year said the company “seems willing to destroy shareholder value in the name of diversification”.
“Management seem stubborn and entrenched,” Sequoia managers Robert Goldfarb and David Poppe, said, before Mr East had taken over.
ValueAct, which has waged campaigns against companies including Microsoft and MSCI, has a track record of pressing for companies it invests in to sell themselves. Last year it built up a position in the US oil services company Dresser Rand before it was bought by Germany’s Siemens.
In 2012, Valueact teamed up with the private equity group CVC to launch a failed bid for the UK software company Misys. The company was later sold to another buyer, Vista Equity Partners, netting a healthy profit for ValueAct as its largest shareholder.
Rolls-Royce this week announced a 57 per cent drop in interim pre-tax profits and is in the throes of a wide-ranging restructuring to cut costs.

Mr East, who took over from John Rishton as chief executive at the beginning of July, told the Financial Times this week that he believed the diversification strategy was “broadly correct”. A strategic review to consider Rolls-Royce’s focus would be undertaken in 12 - 18 months, he said.
An ongoing commitment to diversifying away from its core aerospace business into marine and other power systems is unlikely to appease already critical investors like Sequoia. ValueAct’s views on Rolls-Royce strategy are unknown.
Investors have argued that its former management missed out on the booming market for single-aisle passenger aircraft when it withdrew from an engine joint venture with Pratt & Whitney of the US to focus on the lower volume but higher margin widebody segment.
The marine business has been hard hit by the collapse in offshore oil and gas investment and was at the heart of two of the four profit warnings since February 2014. Earlier this year, Sequoia Fund, a US based investor, delivered a damning assessment of previous Rolls-Royce management and called on the group to refocus on aerospace.