Rolls-Royce and Daimler eye Tognum engine-maker

Rolls-Royce is in talks with Daimler about the possible acquisition of German engine-maker Tognum, the UK engineering giant said yesterday. The two companies are in "constructive discussions" over the plan for each to acquire equal stakes in Tognum, which is a leading supplier of engines and powertrains for ships, trains, and heavy industry.

The German car giant already owns nearly 29 per cent of Tognum, which is valued at nearly $3bn (£2.6bn).

Rolls-Royce yesterday refused to be drawn on its interest in the deal. But a tie-up with Tognum would be a boost to the company's global marine arm, which is one of its fastest-growing divisions.

Rolls-Royce has had a major presence in Germany since 1990, when the engine-maker set up a joint venture with BMW to build BR700 engines for regional aircraft and corporate jets. Since then, Rolls-Royce has invested €1.5bn (£1.3bn) in the German business, taking over the venture from BMW in 2000 and now employing more than 3,000 people in the renamed Rolls-Royce Deutschland business.

So far, the majority of the German business has been in civil aerospace. The Tognum deal would change the balance, playing into an increasing focus on global growth opportunities in the marine business.

Since buying Vickers in 1999, Rolls-Royce has turned the defence-focused business into a global player with merchant and offshore industrial buyers alongside its 70 naval customers.

The strategy has worked, pushing the marine division's revenues up at a compound annual growth rate of 21 per cent. And the sector remains critical to Rolls-Royce's future plans. At an investor meeting in November, John Paterson, the president of Rolls-Royce marine, forecast $340bn-worth of opportunities over the next 20 years, $235bn of them in the power systems, and the remainder in service contracts.

As a bastion of British industry, Rolls-Royce is a key player in the Government's aims to rebalance the economy away from an over-reliance on financial services, while simultaneously filling the gap left by public sector spending cuts with export-led private sector growth.

Underlining the Government's efforts to forge close links with industry, David Cameron cut the ribbon at the Rolls-Royce's research and development exhibition at its main UK facility in Derby yesterday. "I believe businesses like Rolls-Royce will play a crucial role in the UK's economic recovery, by supporting and creating jobs and delivering growth," he said.

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