Rolls-Royce ceases merger negotiations with Wärtsilä

As the Wall Street Journal reported, one of the most popular industrial companies in the U.K. – Rolls-Royce Holdings Plc, which is also a manufacturer of aircraft engines for Airbus Group NV and Boeing Co., has faced an obstacle in its plans of expanding its growing ship-engine business.

Only six months earlier, John Rishton, who is the Chief Executive Officer of Rolls-Royce, identified Scandinavia as one of the regions on which the company has focused its attention for expanding its activities associated with marine engineering. He said in July 2013: “Scandinavian businesses, engines and offshore oil and gas activities” are important. “We are seeing significant opportunity for growth on the way.”

On Thursday, Rolls-Royce announced that it has ceased the negotiations over the multibillion-dollar acquisition of its smaller Finnish competitor Wärtsilä Oyj. The Finnish company Wärtsilä is engaged in the provision of power solutions for the marine and energy market, and is considered a specialist maker of midsize ships diesel engines with a market capitalization of around 10 billion dollars.

Rolls-Royce said in its statement that: “preliminary discussuins with the board of Wärtsilä regarding a possible offer for the company are no longer continuing.” The company refused to make comments on the issue and did not provide any information about the reason why negotiations had failed.

There was an increasing demand for ships and shipping equipment in the energy sector, which had become the reason why Rolls-Royce was interested in Wärtsilä on the first place. Thanks to the recent discoveries of shale formations deposits, there is a recent natural-gas boom in the U.S. This increases the demand for new vessels not only in the U.S., but also in the area of Brazil and Africa.

The new prospects and opportunities in the sector is giving a reason to Rolls-Royce to become more focused on marine equipment, which constitutes about 17% of the overall revenue of the company. On the other hand, engines for commercial aircraft is considered to be the biggest business of Rolls-Royce and are recorder to account up to 43% of the sales.

According to CNN Money, the current share price of Rolls-Royce Holdings Plc is 2.63% down, and its one-year return rate is 2.67% down. The 15 analysts offering 12-month price forecasts for Rolls-Royce Holdings Plc have a median target of 107.51, with a high estimate of 118.16 and a low estimate of 84.34. The median estimate represents a 4.18% increase from the last price of 103.20.