Tognum takeover to shake up propulsion and energy markets
by ian cameron
The proposed takeover of German engine maker Tognum by the team of Daimler and Rolls-Royce appears to be a coming together of three willing partners. As this issue goes to press, the deal, initially proposed at US$4.4 billion, looks a near certainty to happen. And once it has done so it will cause huge ripples in the markets for propulsion and distributed energy systems.
All three groups bring excellent products and services to the table.
Tognum is best known for its MTU product, supplies engines, propulsion systems and components for marine, energy, defense, power generation and other off-highway industrial applications; Rolls-Royce has a wide-ranging portfolio principally of diesel and gas engines and gas turbines; while automotive company Daimler, which already owned a 28% stake in Tognum, has divisions such as Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans and Daimler Buses. Surprisingly though, the announcement of the takeover bid was not met with the usual, traditional gesture of defiance from a company about to be purchased.
Indeed, it was quite the opposite in Tognum’s case. On the same day that Rolls-Royce and Daimler tabled their offer, Tognum’s board in Friedrichshafen, Germany, said that in principle it welcomed the move that ultimately sets up a new joint venture comprising Tognum and Bergen, the gas and diesel medium-speed engine business from Rolls-Royce. And they continued in encouraging terms about the merits of the takeover, how an alliance would strengthen Tognum’s own market position and how the deal would “create one of the world’s technology leaders in propulsion systems and distributed energy systems,” according to Tognum’s Chief Executive Officer Volker Heuer, who added, “It would put us in an excellent position to play an active role in shaping the further consolidation of the market.”
And he is probably very right. For Rolls-Royce and Tognum in particular, perhaps less so Daimler, the rationale behind the takeover is indisputable, especially in the marine sector.
Rolls-Royce has an increasingly powerful foothold in the global marine market and at the end of the 2010 financial year had an order book worth £3 billion (approximately US$4.86 billion) with profits of £332 million (US$538 million). The marine business provides integrated power systems for various applications in the offshore oil and gas, specialist vessel and naval markets with more than 2500 customers including 70 navies and with equipment on 30 000 vessels worldwide.
Similarly, Tognum has a wellestablished marine base. Its MTU brand has a long tradition of supplying marine engines, propulsion plant and automation systems. More than 24 000 MTU diesel engines have been delivered for both large and small vessels around the world. Tognum
claims the majority of hydrofoils and catamarans in operation throughout Europe and Asia are powered by MTU engines that are also fitted in a range of workboats from harbor tugs
to fishery protection vessels.
By combining Tognum with Bergen, the new joint venture will operate in attractive and fast-growing markets, especially in developing economies. Combined, the joint venture would
cover the complete range of medium-and high-speed diesel engines for complete propulsion systems, Tognum said. Furthermore, the marine market is facing up to ever-stricter emission
standards and a drive toward enhanced fuel efficiency. By linking with Tognum, Rolls-Royce would shore up its ability to secure orders for ships with state-of-the-art powertrain systems.
The focus on technology is a key aspect of the proposed Tognum/Daimler/ Rolls-Royce team.
Under an agreement in principle, Daimler and Rolls-Royce said they intend to invest in Tognum’s research and development. A key factor of the deal is that all of the markets
the new joint venture will serve have an increasing requirement for clean, fuel-efficient technologies. Tognum said it has already carried out extensive research in preparation
for stricter emission regulations, especially from 2014, and added that it is likely that Rolls-Royce will take over the former’s fuel cell business, which Tognum recently decided to discontinue for commercial reasons.
Daimler also highlighted the technology benefits to be created through the deal, saying it will be a partner in research and development “to develop modern and highly efficient engine
systems and make a significant contribution to the efforts to meet evermore stringent emission standards.” In addition, Daimler stressed, Tognum will also benefit from leveraging Daimler’s “strong global network.” The deal would also secure Daimler’s business links with Tognum as an
engine supplier and will add to the Tognum product range with its diesel engines, thus, it added, bolstering its business relationship with Tognum.
There were other reasons, of course, for the apparently conciliatory reaction by Tognum to the takeover offer. In principle, Daimler and Rolls-Royce said that Friedrichshafen should remain
as the headquarters for the new company as well as the research, development and production site for propulsion and energy systems. Furthermore, it appears likely that Tognum, which has around 9000 employees of which 85% are in Germany will remain a customer facing business and its existing collective labor agreement will be unchanged.
Interestingly, the deal would mark a spectacular send-off for Sir John Rose, Rolls-Royce’s chief executive, who is retiring soon. He said, “This is a significant opportunity to harness the innovation, technology and engineering expertise of Rolls-Royce, Daimler and Tognum. “The complementary capabilities we are bringing together will provide us with a world-leading proposition and will enable us to expand the business by developing a broader portfolio of
integrated power systems and services for existing and new customers.”