Outlook: Rolls-Royce pays a Challenging price for Vickers

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The Independent Online
SIR RALPH Robins might find it easier to beat the London traffic and get to all those meetings with institutional investors by trading in his chauffeur-driven Jag for a Challenger tank, but otherwise he faces an uphill task persuading the City of the merits of the Vickers takeover.

Those with memories stretching back a decade will recall the ill-fated acquisition of Northern Engineering Industries and shiver. Then, as now, Rolls got distracted from its main job of making aero-engines and decided to buy a different type of business, in that case one that made turbines for power stations. Then, as now, there was a lot of brave talk about global leadership and synergies as well as all the lovely things that would happen to earnings.

The reckoning, when it came, was savage both for shareholders in Rolls, who saw pounds 263m wiped off profits, and for jobs in the North East, where they are still adjusting to the demise of one of the regions best known employers. Rolls says solemnly that things will be different this time around. The pounds 576m that it is paying for Vickers (pounds 780m if you throw in its debt) is cheap by the standards of other deals in the engineering sector.

What is more, Rolls is not entering unchartered waters with this deal since its main interest lies not in Challenger tanks but Vickers' marine propulsion division, an area where Rolls already has expertise of its own in the shape of its naval gas turbine business. Just connect its marine Trent engine to Vickers' latest Kamewa water jets and watch that bottom line grow.

Unfortunately, yesterday's marriage was consummated so fast that most of the detail is still waiting to be filled in - like forecasts for the revenues and savings that will flow from the deal. In case the words marry, haste, repent and leisure should come to mind, Rolls is anxious to stress that it has been tracking Vickers on its radar for more than a year.

Even so, Rolls will struggle to convince the City that this deal does as much for its own shareholders as those of Vickers. The baron from Brussels, Paul Buysse, who has been running Vickers for 18 months and will now presumably collect his cheque and move on, could only have dreamed of propelling the Vickers share price to the 250p that Rolls is paying.