Activist investor takes big stake in troubled Rolls-Royce
Parts from one of the company’s engines rained down over Italy in August.
The American investor which pushed the Saatchi brothers out of the advertising company which bore their name has taken a near-£700 million stake in Rolls-Royce, as the company struggles with its plane engines.
Harris Associates revealed on Wednesday it had built up a 5% share of the firm.
Rolls-Royce has faced a series of challenges over its Trent 1000 engines, with one failing over Italy, raining down metal on a local town just minutes after take-off.
These businesses must offer significant profit potential and be run by managers who think and act as owners Harris Associates on its investment strategy
Problems with the engine, which have been going on for years, in August caused credit rating agency Moody’s to downgrade its rating for the company – making it more difficult and more expensive for Rolls-Royce to borrow money.
A month later Rolls-Royce said it was still working on the problems and had removed more engines than it expected. It will not be until the second quarter of next year that fewer than 10 aircraft are grounded because of issues with the engines.
The engineering giant’s woes have already cost hundreds of millions of pounds. In August, George Salmon, an analyst at Hargreaves Lansdown, said that investors would need to give Rolls-Royce a “higher than usual degree of trust and understanding” as it battles with the problems.
However, chief executive Warren East has delivered some progress, and the company has not changed the amount it expects to lose from the Trent 1000 issues.
It is unclear if Harris will be a patient investor in the company, or if it will push for change.
In 1994 David Herro, a portfolio manager who is now chief investment officer, led a shareholder revolt that forced Charles and Maurice Saatchi to step down from Saatchi & Saatchi, the advertising agency they founded.
Harris Associates did not respond when asked by the PA news agency what it plans for the stake.
On its website the firm says it looks for companies which are trading at a significant discount to what they are worth.
“These businesses must offer significant profit potential and be run by managers who think and act as owners,” it says.
It also owns a stake in Glencore, and was the biggest investor in Tesco until selling most of its shares in 2014.