Daimler Divesting Engines Division to Rolls Royce

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The much-ballyhooed partnership between Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) (FRA:DAI) and Rolls-Royce Holding PLC (ADR) (OTCMKTS:RYCEY) (LON:RR) only ended up lasting a few years. Daimler announced today that it is selling its 50% stake in an engines joint venture to partner Rolls-Royce Holdings Plc. The luxury auto manufacturing giant is looking to invest the proceeds in its expanding automotive and truck businesses.

The statement released by the companies earlier today noted the exact terms of the deal will be determined at a future date. However, Rolls-Royce Holding PLC (ADR) (OTCMKTS:RYCEY) (LON:RR) placed a value of 1.9 billion pounds ($3.2 billion) for the venture on the firm’s balance sheet as of Dec. 31, 2013.

2011 partnership deal

Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) (FRA:DAI) and Rolls-Royce Holding PLC (ADR) (OTCMKTS:RYCEY) (LON:RR) became partners in a 3.4 billion-euro ($4.72 billion) bid for a German engine manufacturer in late 2011. The consolidated enterprise produces high-speed diesel engines for the marine, energy and defense industries. Rolls-Royce also contributed its Bergen engine business as part of its equity in the venture. A number of analysts at the time questioned just how long this partnership would last, especially given the existence of a “put option” for Rolls-Royce to buyout Daimler’s stake.

According a previously agreed contract, Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) (FRA:DAI) will still provide medium- and heavy-duty diesel engines to the venture until 2025. Daimler currently delivers about 18,000 engines annually per the agreement.

Analyst comments

Bloomberg reached out to a European auto industry analyst for further analysis of today’s news. “Daimler needs to invest in new technologies in the auto segments,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler, commenting on the divestment news. “They need the money there more urgently than for a more peripheral business.”

Daimler trying to become No. 1 luxury automaker

Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) (FRA:DAI) CEO Dieter Zetsche has publicly stated he plans for Mercedes to overtake Audi AG (ETR:NSU) (FRA:NSU) (OTCMKTS:AUDVF) and Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW) to become the world’s largest luxury car maker by 2020. He has the company ambitiously on track to roll out 30 new vehicles over the next six years, close to a dozen of which will have been designed from scratch.

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