Daimler and Rolls-Royce offer to raise Tognum bid

Daimler AG and Rolls-Royce Group Plc have offered to raise their bid for Tognum AG by 8.3 per cent after their initial price failed to attract the German engine maker’s investors.

The suitors are prepared to pay euro 26 a share if Tognum supports the bid, the Friedrichshafen, Germany-based company said today in a statement. Tognum, which said the offer was made verbally, will evaluate the amended proposal once it is received.

“The executive board welcomes the willingness of the bidder to consider an increased offer price,” Tognum said in the statement. “As soon as the company has been provided with the complete amended offer, the executive board and the supervisory board will comment on it after examination.”

 

A Daimler spokesman wasn’t immediately available to comment.

Daimler, the world’s third-biggest maker of luxury cars, and Rolls-Royce announced their euro 24 a-share bid on March 9. The stock has traded above that price since then, and Tognum has called the offer too low. The bid is conditional on acceptance by holders of more than 50 per cent of Tognum stock. Excluding Daimler’s 28.43 per cent stake in Tognum, just 0.02 per cent of the engine maker’s capital was tendered as of May 12.

Tognum is worth “significantly more” than euro 24 a share because the company will benefit from research and development investments after reducing net debt by euro 300 million since its July 2007 initial public offering, Chief Executive Officer Volker Heuer said on May 11.

Investors, including ING Groep NV, First Eagle Investment Management and Delta Lloyd Asset Management, have backed Tognum’s position. Overall, holders of about 30 per cent of the manufacturer’s shares have rejected the offer, a person familiar with the situation said on April 8.

Tognum closed today up 15 cents, or 0.6 per cent, at euro 26.05 in Frankfurt trading, valuing the company at euro 3.42 billion ($4.82 billion).

Daimler and Rolls-Royce, the world’s second-biggest aircraft-engine maker, started their tender for Tognum on April 6 to gain control of the world’s second-largest manufacturer of high- speed diesel engines for the marine, energy and defence industries, after Caterpillar Inc. The original offer was 30 per cent above the stock price before the companies expressed interest.

Rolls-Royce, whose engines power Airbus SAS and Boeing planes, plans to integrate Tognum into its Bergen business, which makes engines for ships and power generators. Daimler’s stake in Tognum allows it to block efforts by other potential suitors, because shareholders with more than 25 per cent of any German company have the power to veto major strategic moves.

Daimler, the maker of Mercedes-Benz cars and trucks, sold Tognum, then called MTU Friedrichshafen, for euro 1.6 billion to Stockholm-based private equity firm EQT Partners in March 2006 to help pay for reorganising Chrysler, when it still owned the US carmaker.

After Tognum’s IPO at euro 24 a share, Daimler bought a 22 per cent stake for euro 585 million in April 2008, raising the holding to more than 25 per cent three months later.

Daimler ranks third in building luxury vehicles after Bayerische Motoren Werke AG and Volkswagen AG’s Audi division. The VW brand overtook Mercedes-Benz in deliveries this year.