ValueAct, the US activist investor that has become the biggest single investor in the troubled FTSE100 stalwart Rolls-Royce, is expected to push for a seat on the board, according to reports.
ValueAct is also thought likely to pressure the aircraft engine maker to accelerate a cost-cutting programme within its core aerospace division. The reports sent Rolls-Royce shares soaring almost 6 per cent to 841p on 3 August, as hopes rose that the business will speed up the turnaround plan under new chief executive Warren East.
Rolls-Royce has had a woeful 18 months which has included a string of profit warnings, job cuts and management changes. Mr East replaced John Rishton as chief executive last month.
ValueAct became Rolls-Royce’s largest shareholder on 31 July when it snapped up a 5.4 per cent stake.
ValueAct, which played a key role in shaking up Microsoft’s management team in 2013, typically works by becoming the largest investor in each of its core investments and has been known to successfully install directors on company boards.
The San Francisco-based hedge fund has about $18bn in assets and characterises itself as an investor which works constructively with management and the company’s board to maximise returns for all shareholders, rather than staging public battles with management.
Some analysts believe ValueAct could now also push for Rolls to divest its non-aerospace divisions as part of a strategic overhaul being led by Mr East.
Accendo Markets analyst Augustin Eden said “the sound of cash savings and streamlining plans” was positive for the stock. He added: “1065 pence [is] now a realistic target for shares”.
According to reports, ValueAct plans to position itself as an ally of Mr East as he looks to improve margins and cash flow in Rolls’ core aero-engines division.
The company is in the midst of a difficult transition from producing the Trent 700 engines that power Airbus’s A330 widebody aircraft to the Trent 7000 that will go in the remodelled version, the A330neo.
Last week, Rolls reported that pre-tax profits fell from £713m to £310m in the six months ending 30 June, with lower demand for engines and weak oil prices hitting the company. Rolls-Royce has already cut its full-year forecast for 2015 and warned of further headwinds in 2016.
Speaking at the time, Mr East said: “Despite the disappointment of our recent update, our second-half outlook remains positive. The initial phase of my ongoing operational review has and will continue to concentrate on how we drive improvements and sharpen our focus to make us a more resilient and sustainable business.”
Mr East had previously unveiled Rolls-Royce’s third profits warning in less than 18 months, in only his second day in the job on 6 July. At the time, the company said it planned to scrap a £1bn share buyback, despite being half-way through the programme.
The company is also being investigated by the Serious Fraud Office over allegations of corruption in Indonesia and China, and in February it was dragged into a bribery scandal involving Brazil’s state oil producer Petrobras amid allegations that it had used backhanders to win a $100m (£64m) contract
ValueAct was founded by the former Fidelity manager Jeffrey Ubben. In 2013 the hedge fund took a seat on Microsoft’s board. It was the first time the software giant had appointed an activist investor to its board and the stock rose sharply.Reuse content