Rolls-Royce Considers Sale of Marine Division

Last week, engine maker Rolls-Royce issued its fifth profit warning in two years and warned shareholders of a dividend cut. The string of losses ends a long, steady history of profitability, and the company has announced some 3,600 job cuts as part of a restructuring program, including significant cuts to its 2,000-member payroll of senior engineering managers.

Shares in Rolls are down by half since the start of the year, and several factors are at play A downturn in the offshore market has cut revenues in its marine engine unit as shipyard orders plummet for OSVs and other vessels. Profitable service contracts on its products, including long-haul jets, have been slashed as many airlines decide to retire large aircraft early. In the business jet market, Rolls-Royce has lost significant market share to its competitors.

Some analysts have suggested that the company's marine engine unit – including diesel maker MTU – has proved to be a distraction from its core aerospace business, and U.S. activist investor ValueAct has pushed for the company to sell the division. ValueAct recently increased its stake in the company to 10 percent.

CEO Warren East has said that Rolls-Royce needs to retain diversification to offset exposure to the aircraft market, and analysts say that he is likely to resist pressure for a sale of the marine division. In a presentation to investors November 24, Mr. East suggested that the company's land and sea business offered significant potential for growth, independent of economic recovery. He cited its relatively competitive position in the market and the new areas of product development in which it currently holds a technological edge, and indicated that a spinoff or sale unlikely.

Rolls recently announced that it is scaling back its marine unit's presence in Dartmouth, Canada, cutting 17 positions at its facility and preparing a move to a smaller site. The Dartmouth facility was focused on oceanographic instrumentation, including a profiling device used in the Deepwater Horizon spill recovery.