LONDON—Rolls-Royce Holdings PLC on Monday said its top leaders
met with ValueAct Capital Management LP after the activist investor
raised its stake to more than 5% in the British aircraft-engine
maker.
Chairman Ian Davis and chief executive Warren East spoke with
ValueAct, the London-based company said.
"We have engaged in constructive discussions with ValueAct over
recent days and welcome them as an investor who recognizes the
long-term value of our business," a company spokesman said.
Rolls-Royce wouldn't detail the content of the talks.
ValueAct crossed the 5% reporting threshold on July 29,
Rolls-Royce said in a regulatory announcement on Friday. The
investor, which has had a smaller share in Rolls-Royce for some
time, holds 5.44% of the stock, the regulatory notice said.
Shares in London-based Rolls-Royce rose sharply on Friday after
ValueAct's purchase was first disclosed and continued their rally
Monday, rising 5.9%.
ValueAct seeks to add long-term value to companies, working
behind the scenes with management rather than seeking to fight
publicly like many activists. The San Francisco-based hedge fund's
interest in Rolls-Royce has been driven by the engineering
company's large backlog of orders for commercial airliner engines,
which stretches past the end of the decade.
Founded by former Fidelity stock picker Jeffrey Ubben, ValueAct
gained attention in 2013 when it took a board seat at Microsoft
Corp., though it held less than 1% of the stock. It was the first
time the giant software maker appointed an activist shareholder to
its board. The investor this year also took a stake in oil-field
services provider Baker Hughes, which Halliburton Co. is
buying.
Rolls-Royce has been struggling with headwinds in its marine
engine business as demand for ships has ebbed because of the fall
in crude prices. Profitability at the crucial aerospace unit also
has been under pressure, in part owing to weakening demand for one
of its most profitable widebody engines.
ValueAct at times has sought board seats, though so far it
hasn't said that was a priority for its Rolls-Royce stake. The firm
increased its holding with the arrival of Mr. East as new chief
executive, betting it would provide momentum to turning around the
company's fortunes.
Rolls-Royce had suffered a series of profit warnings and last
week reported a 32% fall in pretax profit to £ 439 million ($684
million) and a 3% drop in sales. Mr. East is undertaking an
operational review of the business. He said on Thursday that he
sought to speed transformation efforts.
Rolls-Royce has faced some calls to focus on its aerospace
activities and shed some other businesses. Mr. East said he isn't
planning to shake up the company's strategy, echoing comments made
by Mr. Davis in April.
Write to Robert Wall at robert.wall@wsj.com
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