FRANKFURT (Reuters) - Daimler AG and British engine manufacturer Rolls-Royce are considering a joint bid for engine maker Tognum in a deal sources said could be worth about 3 billion euros ($4.2 billion).
"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.
Tognum is a heavy diesel engine maker formerly owned by Daimler, which has a 28.4 percent stake in Tognum.
Daimler and Rolls-Royce, which is a different company than the BMW-owned Rolls-Royce car brand, said no final decision had been made.
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.
"Daimler sees it as a move defending their investment and their supply chain," a source close to Tognum, 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, decentralised power plants.
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.
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.
Daimler agreed to sell Tognum to Swedish private equity group EQT in December 2005, only to buy back over 20 percent in April 2008, the year after its former unit went public.