I have a real soft spot for the soon-to-be-dismantled Rolls-Royce Holdings (slow-moving, ossified, and un-repentant 19th-Century holdover that it is). And though I would hate to see Rolls sold for parts, some creative disassembly of Rolls Royces’ sinking Maritime Division will be required for the company to survive.
And that’s a shame.
The ocean-focused division of this aviation/maritime/power-plant conglomerate, Rolls-Royce Maritime/Rolls-Royce Marine, has patiently assembled a constellation of top-shelf industries–creating a few mini-monopolies in the process (And almost a few big ones–imagine, for a moment, the competitive environment had Rolls Royce won Wartsilla back in ’13-’14?). Rolls Royce Holdings had a smart strategy–they intended to sell everything relatively low-risk–from ship designs to propellers to engines to mission-critical widgets–to shipbuilders (who would then shoulder the risk of putting everything together). And with the long-term revenue stream from maintenance of sold maritime systems, the maritime group was a huge cash-generating diversification play, moderating the cyclical nature of Rolls Royce’s aviation business, riding the oil boom into profits and high margins.
That business plan worked really, really well….until it didn’t.
Today, that “fantastic business plan” is crumbling. The total collapse of the oil patch has weakened the company to the point where shareholders want to shed the lagging maritime sector.
“Oh, but they’ll never sell maritime”, scoff the Rolls-ists, “management will never sell the crown jewels.” Well, ummm, yes, Rolls will. They are ready to sell. Management got a taste last year, after Rolls executives sold their energy gas turbine and compressor business to Siemens, shedding a neat opportunity to exploit the emerging decentralized power generation industry for a cool $1.3 billion dollars. The maritime portion of the business–complete with a nice heap of military-grade submarine tech–will be next to go.
Rolls needs cash:
Yes, Rolls Royce Holdings needs cash–for dividends, stock buy-backs, extra signature forms (their bureaucracy is the stuff of legend) and so on. And that means real opportunity for the right buyer–somebody who aspires for a nice chunk of the military submarine/UUV business.
Why? Well…Rolls Royce Maritime is perfect for any entity looking to “boot-strap” it’s way into obtaining a boat-load of tech necessary to build top-tier military-grade subs. Outside of pressure hull tech and weaponry, Rolls Royce owns a large amount of the under-appreciated back-room systems items that sub-builders absolutely require to fabricate military-grade submarines. It’s real value-added stuff, and, in the age where everybody is out there making surface ships (and suffering through the oil bust), sub-tech is the only piece that holds potential for a real premium right now.
“Oh, but they’ll nationalize it all”, say the critics. No, they won’t. Britain doesn’t have the ready cash, and even if Parliament ring-fences the nuclear technology piece of the company, “nationalizing the nuke”, there’s still plenty in the Rolls portfolio for any company who has a vision of building a non-nuclear submarine–couplings, propulsors, and power plants. Recent Rolls acquisition-engine-maker MTU-sells a number of vital (and darned interesting) components for non-nuclear subs.
And…for the right price, it could be yours!
Who Will Buy?
So…if Rolls Royce Maritime goes up for bid, who will buy? Outside of a national bid for technology (China), I could see some Israeli entities making a play for some pieces (I still hold to the idea that Israel will get into the sub-making business. It has all kinds of systems integration experience and weapons competency, but lacks expertise on subsystems).
As far as specific companies go, BAE is just drooling to have the UK government drop Rolls-Royce into it’s lap. But, if UK dares to risk the ossified maritime parts of their grand 19th century dinosaur, there’s a potentially disruptive game changer out there–a big American-based defense company
That’s right.
Those bloody Yanks.
Yes, there are a few big majors out there that have integration experience, weapons experience, and distinct interest in (at a minimum) conventional sub building (either for export or, possibly, domestic use). Obtaining key tech (I think MTU’s sub-ready 4000 series engine is made in the USA, by the way) makes the integration of boat and weapon systems far tighter (a premium for UUVs), and, possibly, less costly.
And if the Rolls Royce Holdings nuclear tech is for sale, portable, and remotely acceptable to the U.S. Navy (yeah, yeah, I’m no nuke) it’d be darned interesting to add even a hint of a viable contender for SSN and SSBN business. Electric Boat is going to have a heck of a time staffing up for SSBN, and may look vulnerable with SSN(X) coming. The Electric Boat/Newport News partnership is somewhat artificial. There’s an opportunity for disruption, and real competition in the SSN and SSBN business would be absolutely fascinating.
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un-repentant 19th-Century holdover that it is…. grand 19th century dinosaur
As it happens, the other day I walked past the plaque that commemorates the first meeting of Rolls and Royce – in 1904. So old, but not 19th century.
I’m not sure about the nuke stuff, it’s a bit of a special case as the current government has pumped massive amounts of money into Raynesway so they would be particularly unhappy to see it sold out from under them. The British reactors are … heavily influenced by US designs, but we make a big deal of pretending that they’re completely separate. I’m not sure whether that’s just sovereign willy-waving or there’s some kind of treaty obligation about not proliferating working reactor designs.
It’s going to be interesting to see what happens. Cameron may be from the same side as Thatcher but the world is a different place these days, I wouldn’t rule out nationalisation of a significant chunk of RR – and they can always print the money to do it. .gov.uk would probably make it difficult to sell to a non-EU bidder – again, the mood music has changed somewhat, it’s been changing in the last 2 years or so. Before then Cameron would have nodded through something like the Pfizer purchase of Zeneca, but not now. Then you have the fact that the new SSBN’s have become super-high-profile in the last few months, thanks to the Labour party electing an old-school unilateralist as leader, and the Parliamentary vote to buy them (due in a few weeks) has gone from a sleepy area of cross-party agreement to become the second-biggest political event this year aside from the EU vote.
So although you’ve got this new investor making a lot of noise, I’m not sure whether he’s quite judged the mood on this side of the pond, he may be disappointed with the number of potential buyers. There’s a lot of moving parts here, it will be interesting to see what happens with the RR presentation in two weeks time.