Rolls-Royce is said to be preparing to allow ValueAct a seat on its board after the US activist investor sought to reassure the company and its shareholders it was a long-term backer with the right experience to help revive the embattled engineering business.
Allowing a US activist fund a board seat on a FTSE 100 company would be a highly unusual move but ValueAct has been working behind the scenes to convince Rolls-Royce and its shareholders that it is not an opportunistic investor seeking a rapid break-up or trying to extract cash from the business.
ValueAct bought a 5.5% stake in Rolls-Royce last July and said it wanted to work with the company to improve its performance. The San Francisco-based fund increased its stake to 10% in November as it stepped up pressure for board representation.
Rolls-Royce wanted to make sure any person nominated by ValueAct could add skills and experience to the board and to get the backing of its shareholders for the decision. Bradley Singer, ValueAct’s chief operating officer, has met some of Rolls-Royce’s large shareholders to reassure them about ValueAct’s intentions.
Singer is likely to be ValueAct’s board representative and Rolls-Royce could announce his nomination soon before a vote at its annual general meeting in May, the Financial Times reported (£) on Wednesday. Rolls-Royce shares, down by a third since last April, rose 1.3% to 639p in early trading.
A Rolls-Royce spokesman said: “We’re engaged in constructive discussions with ValueAct and no decision has yet been taken by the board.” A spokeswoman for ValueAct declined to comment.
Rolls-Royce has issued a string of profit warnings before and after ValueAct bought its stake and last week cut its dividend for the first time in 24 years. Warren East, who took over as chief executive in July, has said the group is bloated and cumbersome, making it too slow to react to market changes.
The company has also been affected by cuts to defence spending, falling demand for corporate jets in emerging markets and plunging oil prices that have forced energy companies to cut spending.
East has said he is content with Rolls-Royce’s range of businesses, which include making marine engines and reactors for nuclear submarines. In discussions with the company and shareholders, ValueAct has played down any immediate desire to split off those businesses from the core aerospace division, the FT reported.
After early reluctance, the Derby-based group became more open to appointing a director from ValueAct, whose co-founder Jeffrey Ubben has helped engineer corporate shakeups such as the departure of former Microsoft chief executive Steve Ballmer. ValueAct has pressed for changes at 75 companies since Ubben launched the firm in 2000.
But the fund seeks to distinguish itself from aggressive US activists such as Carl Icahn and Bill Ackman, who use public campaigns to pressurise boards into doing their bidding. ValueAct portrays itself as a low-key, long-term investor working more like a private equity firm to improve a company’s performance over many years.
This article was written by Sean Farrell, for theguardian.com on Wednesday 17th February 2016 09.32 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010