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Rolls-Royce Has Met With ValueAct

08/03/2015 | 01:35pm US/Eastern

LONDON?Rolls-Royce Holdings PLC on Monday said its top leaders met with ValueAct Capital Management LP after the activist investor raised its stake to more than 5% in the British aircraft-engine maker.

Chairman Ian Davis and chief executive Warren East spoke with ValueAct, the London-based company said.

"We have engaged in constructive discussions with ValueAct over recent days and welcome them as an investor who recognizes the long-term value of our business," a company spokesman said. Rolls-Royce wouldn't detail the content of the talks.

ValueAct crossed the 5% reporting threshold on July 29, Rolls-Royce said in a regulatory announcement on Friday. The investor, which has had a smaller share in Rolls-Royce for some time, holds 5.44% of the stock, the regulatory notice said.

Shares in London-based Rolls-Royce rose sharply on Friday after ValueAct's purchase was first disclosed and continued their rally Monday, rising 5.9%.

ValueAct seeks to add long-term value to companies, working behind the scenes with management rather than seeking to fight publicly like many activists. The San Francisco-based hedge fund's interest in Rolls-Royce has been driven by the engineering company's large backlog of orders for commercial airliner engines, which stretches past the end of the decade.

Founded by former Fidelity stock picker Jeffrey Ubben, ValueAct gained attention in 2013 when it took a board seat at Microsoft Corp., though it held less than 1% of the stock. It was the first time the giant software maker appointed an activist shareholder to its board. The investor this year also took a stake in oil-field services provider Baker Hughes, which Halliburton Co. is buying.

Rolls-Royce has been struggling with headwinds in its marine engine business as demand for ships has ebbed because of the fall in crude prices. Profitability at the crucial aerospace unit also has been under pressure, in part owing to weakening demand for one of its most profitable widebody engines.

ValueAct at times has sought board seats, though so far it hasn't said that was a priority for its Rolls-Royce stake. The firm increased its holding with the arrival of Mr. East as new chief executive, betting it would provide momentum to turning around the company's fortunes.

Rolls-Royce had suffered a series of profit warnings and last week reported a 32% fall in pretax profit to £ 439 million ($684 million) and a 3% drop in sales. Mr. East is undertaking an operational review of the business. He said on Thursday that he sought to speed transformation efforts.

Rolls-Royce has faced some calls to focus on its aerospace activities and shed some other businesses. Mr. East said he isn't planning to shake up the company's strategy, echoing comments made by Mr. Davis in April.

Write to Robert Wall at robert.wall@wsj.com

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