Activist investor ValueAct raises Rolls-Royce stake to over 10 pct

(Adds Rolls-Royce comment, share price, background)

By Sarah Young

LONDON, Nov 19 (Reuters) - Activist investor ValueAct has raised its stake in Britain's Rolls-Royce to more than 10 percent, a move which could ramp up pressure on the company to sell its marine engine unit.

The U.S (Other OTC: UBGXF - news) . activist hedge fund has been pressing for a seat on Rolls-Royce's board and is reported to want the company to focus on its main aero-engine business, which accounts for about half of profits, and divest its unit which makes engines for marine customers.

ValueAct bought a 5.44 percent stake in Rolls-Royce in late July, weeks after Rolls-Royce issued its third profit warning in under a year, and before the company issued a fourth downgrade earlier this month.

Regulatory filings on Thursday showed that ValueAct's stake has now gone over 10 percent, making the fund the company's biggest shareholder.

Rolls-Royce chief executive Warren East, who is four months into the job, has said he is happy with the overall shape of the company but it must be overhauled to adapt better to changing markets. He is due to present an update on a review he has carried out on Tuesday.

A spokesman for ValueAct declined to comment on the fund's purchase of additional shares in Rolls, while Rolls said the two were in touch.

"We are in regular contact with ValueAct, as we are with all our major shareholders. We have a common interest in returning Rolls-Royce to profitable growth," Rolls-Royce said in an emailed statement.

ValueAct played a key role in shaking up Microsoft Corp's management and tends to become one of the largest independent shareholders at each of its core investments.

Shares (Berlin: DI6.BE - news) in Rolls-Royce were flat at 543 pence at 1311 after news about ValueAct was released. The stock has tumbled about 17 percent since the latest profit downgrade on Nov. 12.

Rolls said last week it now expected profit headwinds of 650 million pounds ($992 million) next year, up from 300 million identified in July. Before the downgrade, the consensus forecast for 2016 underlying pretax profit stood at 1.053 billion pounds.

Rolls also warned last week it could cut its dividend payments, with the negative news blamed on a slowdown in Asia which hit demand for servicing older aircraft engines.

That was another blow to the company whose marine business had been struggling for 18 months from a drop in demand for equipment from energy customers due to the plunge in oil prices. ($1 = 0.6551 pounds) (Reporting by Sarah Young; editing by Jason Neely and Adrian Croft)