Rolls-Royce PLC (LON:RR.) has signed an agreement to sell its diesel parts business, L’Orange, part of Rolls-Royce Power Systems, to US firm Woodward Inc., for an enterprise value of €700mln (£610mln).
In a statement, the FTSE 100-listed group said the proceeds “will be used to improve the resilience of the balance sheet and provide additional capital to judiciously pursue opportunities that will drive greater returns for the Group.”
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Rolls-Royce CEO Warren East commented: “This transaction builds on the actions we have taken over the last two years to simplify our business.The divestiture of L’Orange enables Rolls-Royce Power Systems to focus on other long-term, high growth opportunities and our company to allocate our capital to core technologies and businesses that drive greater returns for the Group.”
L’Orange, based in Stuttgart, Germany, supplies fuel injection technology for engines that power a wide range of industrial applications including marine power and propulsion systems, special-application vehicles, oil and gas processing, and power generation.
In 2017, L’Orange reported pro forma sales of €244mln, pro forma underlying EBITDA of €74mln, pro forma underlying operating profit of €64mln and pro forma post-tax free cash flow of €5mln.
Long-term supply deal
The engineer said L’Orange will remain an important partner and supplier for Rolls-Royce Power Systems in the future through a long-term supply agreement, with an initial term of 15 years.
It added that the sale has no impact on the remainder of the Rolls-Royce Power Systems business.
The group said the transaction is expected to close by the end of the second quarter of calendar 2018, subject to clearance from the German antitrust authorities.
Woodward, headquartered in Fort Collins, Colorado, US, is an independent designer, manufacturer and service provider of control system solutions and components for the aerospace and industrial markets.
In a note to clients, analysts at Liberum Capital commented; “The sale price represents an EV/sales multiple of c.3x and EV/EBITDA of c.11x, which appear reasonable. The disposal builds on the actions management have taken to simplify the business.
“The transaction, expected to complete by end of Q2, looks to be c. 5% dilutive to FCF this year.”
They repeated a ‘hold’ rating and 875p price target on the stock.
In late afternoon trading, Rolls-Royce shares were up almost 1.5% at 880.80p.
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