Azernews.Az

By Bloomberg

Rolls-Royce Holdings Plc is destroying shareholder value by diversifying away from its jet-engine business and it may take a “tough-minded activist” investor to change the company’s direction, according to shareholder Sequoia Fund Inc.

Rolls-Royce has expanded its marine-engine and power generation business, even as those operations face competition from low-cost Asian producers, Sequoia’s managers, Robert Goldfarb and David Poppe, wrote in the fund’s annual report.

“Rolls-Royce has a world-class business making engines for wide-body jets,” they said. Instead, the company “seems willing to destroy shareholder value in the name of diversification. Management and the board seem stubborn and entrenched, and it may take a tough-minded activist to force strategic change.”

The Sequoia letter is a plea for activist investors to push for changes at the company, and those changes may include ousting Chief Executive Officer John Rishton, said John Hempton, chief investment officer of Bronte Capital, an Australian hedge fund that owns shares in Rolls-Royce.

“He has a little explaining to do or the activists will get rid of him kind of fast,” Hempton wrote in a blog post today in which he highlighted Sequoia’s Feb. 12 letter.

Spokespeople for London-based Rolls-Royce didn’t immediately respond when contacted by Bloomberg News today. New York-based Sequoia, which has $7.8 billion of assets, owns 0.67 percent of Rolls-Royce. The fund is managed by Ruane, Cunniff & Goldfarb Inc.

Job Cuts

Rolls-Royce, the world’s second-biggest aero-engine maker, announced plans last year to eliminate about 2,600 jobs and named a new finance chief as it grappled with its first sales drop in a decade. Rolls-Royce forecast last month that profit may fall again this year as a slowing economy prompts clients to delay orders and sanctions over the Ukraine crisis stall Russian deals.

Investec analysts last year suggested that Rolls could raise the company’s valuation by about 20 percent by splitting the aerospace business from the land and sea assets as two listed companies. Another option would be to sell non-aerospace assets, which could result in a cash return of about 6 billion pounds ($9.4 billion), or 330 pence a share, they said.

The U.K. company is suffering in spite of high delivery rates of the world’s two biggest aircraft manufacturers, Boeing Co. and Airbus Group NV. Rishton has been reshaping Rolls- Royce’s operations, including the sale of its gas turbines and compressor business to Siemens AG, since taking charge in 2011.

Rolls-Royce shares dropped 0.9 percent at 961 pence at 9:15 a.m. in London. The stock has gained 11 percent this year, valuing the company at 17.8 billion pounds. The stock slid 32 percent last year, ending a string of five annual advances.