Rolls-Royce share price: investor attacks diversification strategy

on Mar 17, 2015
Updated: Oct 21, 2019

Rolls-Royce Holding Plc’s (LON:RR) shares are in focus today, after an attack on the company’s management strategy by investor Sequoia Fund on Monday, which accused the UK manufacturer of misplacing expansion resources towards marine engines and the highly-competitive energy sector.

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The New York-based investment fund, which owns 0.67 percent of Rolls-Royce, voiced bitter discontent with the company’s diversification policy, calling the overall performance of its UK holdings a “horror show”. The fund said in its 2014 annual report that the UK firm, representing the fund’s top holding, has made a wrong choice with the diversification towards the energy and maritime businesses.
“Rolls-Royce seems willing to destroy shareholder value in the name of diversification,” said Sequoia Fund. “Management and the board seem stubborn and entrenched, and it may take a tough-minded activist to force strategic change.”
The fund hinted that they’d want to see a change at the helm, accusing new chief executive John Rishton of “minimal awareness of the returns on his acquisitions”.
Sequoia, however, praised Rolls’ jet engine business, where the company enjoys a duopoly shared with General Electric, and said it would like to see that business expanded and built on.
According to Rolls’ annual results for the 2014 financial year, the Aerospace business, the bulk of which is focused on jet engines, generated £1.308 billion in underlying profit, or 81 percent of total underlying profit. Meanwhile, the London-based company’s marine business returned £0.138 billion, while the energy division reported a loss of £3 million.
Rolls-Royce’s stock has gained 11 percent so far this year, after sinking as much as 32 percent in 2014.
As of 08:46 GMT, Tuesday, 17 March, Rolls-Royce Holding PLC share price is 974.00p.


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