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.