Rolls-Royce Plan to Sell Norway Assets Hits Russian Hurdle

(Bloomberg) -- Norway has warned Rolls-Royce Holdings Plc that a planned sale of Norwegian assets to a Russian company may pose a national security risk, prompting it to pause the deal.

Rolls-Royce said last month it was intending to sell Bergen Engines AS to TMH Group for 150 million euros ($178 million). The divestment was to be part of an ongoing portfolio evaluation by Rolls-Royce, and a way to help generate cash.

But Norway has now raised questions about the proposed buyer, TMH, which is co-owned by Russian billionaire Iskandar Makhmudov. From its base in Moscow, the closely-held company is the biggest seller of rolling stock in Russia and the former Soviet CIS states, according to its website.

“In recent months, the government has thoroughly investigated this matter, and it can't be ruled out that a sale” of Bergen Engines to TMH “may entail a risk to national security interests,” Justice and Public Security Minister Monica Maeland said in a statement.

Rolls-Royce “alerted the government in the proper way before announcing the sale of Bergen Engines,” spokesman Richard Wray said. “We understand, however, that the Norwegian government now wishes to further investigate the deal and Rolls-Royce will co-operate in any way we can with that review. As requested, we have paused the sales process.”

Rolls-Royce is likely to have expected such a regulatory hurdle, according to Sandy Morris, an analyst at Jefferies International. But the 150 million-euro deal value is “hardly make or break” for the company, he said.

Rolls-Royce is making “good progress” with its restructuring, though “augmenting that with some disposal proceeds would be useful,” Morris said.

Norway's government said all transfers of information related to the due diligence process and other such activities are to be stopped while it looks into the matter.

“The security situation means that we must pay particularly close attention to foreign investment in strategic sectors,” Maeland said.

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