Shares in Tognum, a heavy diesel engine maker formerly owned by carmaker Daimler, gained on the news.
“Daimler AG confirms that together with Rolls-Royce, it is in discussions about the possibility of acquiring the majority of Tognum AG in equal shares,” Daimler and Rolls-Royce said.
“Currently, constructive discussions with the supervisory board and management board of Tognum are being held,” they said.
Both added no final decision had been made. Tognum, which is already 28.4 percent-owned by Daimler, declined to comment.
Sources close to the talks said that Daimler was willing to consider a price of about 24 euros per share — almost 30 percent above Friday’s closing price — whereas Tognum was pushing for more.
“Management and employees hold roughly 10 percent and to convince them, a 30 percent surplus on the share price wouldn’t be enough,” one person close to Tognum said.
The German midcap index was up 0.8 percent at 12:09 p.m. British time. Daimler edged up 1.3 percent and Rolls-Royce eased 0.3 percent.
As part of the deal, Rolls-Royce would contribute its marine business that accounts for around a fifth of the group’s revenues to Tognum, which leads the high-speed marine engine market for smaller, faster boats, according to another source.
“Daimler sees it as a move defending their investment and their supply chain,” that person said, explaining that Tognum rivals like Caterpillar were interested in the company as well.
Tognum manufactures engines for virtually every industrial application including yachts and trains as well as small, decentralized power plants.
Credit Suisse analyst Ross Cowley said Rolls-Royce has been trying to gain critical mass in energy production and build presence in the marine business.
“Given the kind of capability Tognum has and the fact that Rolls has a lot of cash on the balance sheet it looks like a deal that would make sense,” Cowley said.
Earlier, Germany’s manager magazin cited sources as saying Daimler and Rolls-Royce have been negotiating over the past week on a joint bid.
According to the report, Tognum Chief Executive Volker Heuer was open to supporting a possible bid.
