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Rolls-Royce to buy Goodrich out of Aero Engine JV

by Laura Board | Published June 8, 2012 at 12:15 PM

U.K. engines maker Rolls-Royce Holdings plc said Friday, June 8, it would buy Goodrich Corp.'s stake in the companies' three-year-old Aero Engine Controls joint venture in a deal that will likely mitigate European Commission concerns about United Technologies Corp.'s $16.5 billion takeover of the Charlotte, N.C. company.

UTC, of Hartford, Conn., had as recently as January said it expected to buy out Rolls-Royce from the joint venture. However, EC antitrust regulators appear to have forced a reassessment after they identified engine controls as a potential problem area arising from the planned UTC-Goodrich fusion.

Rolls-Royce spokesman Josh Rosenstock declined to comment on the situation, saying only: "This is a transaction that makes sense for us." A UTC representative also declined to comment.

EC regulators have until Aug. 31 to complete their Phase 2 probe of UTC's takeover of Goodrich. Rolls-Royce said the transaction will only proceed once UTC's takeover of Goodrich is complete and once any necessary antitrust clearances are in the bag.

Rolls-Royce said Aero Engine Controls was "designed as a break-even business" and earned a 2011 profit of £200,000 ($308,290). It declined to give revenue figures.

It said the cost of Goodrich's 50% stake in the venture will reflect 50% of the audited net asset value of Aero Engine Controls once the acquisition of Goodrich by UTC is complete. At the end of 2011 the venture had net assets of £8 million and gross assets of £116 million. Rolls-Royce would also assume Aero Engine Controls' external debt, which was £54 million at year's end, and responsibility for a pension scheme that had a £1 million deficit at the end of 2011.

Aero Engine Controls has plants in Indianapolis and in Birmingham and Derby, England, and Belfast, Northern Ireland. It has about 1,400 employees.

Rolls-Royce, which had £11.3 billion in revenue in 2011, anticipates that the quest for fuel efficiency will increase demand for more sophisticated engine controls.

"This acquisition will give Rolls-Royce full ownership of a critical capability that confers competitive advantage," it said.

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Tags: European Commission | Goodrich Corp. | M&A | Rolls-Royce Holdings plc

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