Norway will block Rolls-Royce from selling a Norwegian maritime engine maker to a Russian company on national security grounds, its justice minister told parliament on Tuesday.
The blocking of the deal is a blow for Rolls-Royce, which is aiming to raise 2 billion pounds ($2.76 billion) from disposals by 2022 as part of plans to recover from the pandemic.
Based on Norway's west coast, and owned by Britain's Rolls-Royce for more than 20 years, Bergen Engines supplies NATO member Norway's navy as well as the global shipping industry.
Norway on March 9 said it had temporarily suspended the 150 million euros ($178 million) sale to TMH Group while it assessed security implications.
"We now have sufficient information to conclude that it is necessary to prevent the company from being sold to a group controlled from a country with which we do not have security cooperation," Justice Minister Monica Maeland of the center-right minority government told parliament.
Relations between Norway and Russia, which share a border in the Arctic, gradually improved in the post-Cold War era before suffering a setback when Moscow annexed Crimea in 2014.
That triggered more tension in the north with a military build-up on both sides and more frequent military maneuvers.
"The technology possessed by Bergen Engines, and the engines they produce, would have been of significant military strategic interest to Russia, and would have boosted Russian military capabilities," the Norwegian government said in a statement.
Jobs at stake
Rolls-Royce said it plans to ask Norway for help to find another option for Bergen, noting that Bergen's more than 900 jobs could be at risk.
"We do not intend to retain the business," Rolls-Royce said in a statement.
"We will be seeking the assistance of the Norwegian Government to swiftly find another option, which can provide Bergen Engines and its people with the investment required for the future and Rolls-Royce with an appropriate outcome."
Rolls said it remained committed to its disposal target.
TMH Group said it was disappointed by Norway's decision.
"Throughout the transaction process TMH has remained as transparent as possible regarding the ownership structure and development plans for Bergen Engines," TMH Group said in a statement to Reuters.
"In the course of TMH's preparation for the transaction, nothing has been found that would indicate that the Norwegian Security Act applies to the transaction."
The Russian embassy in Oslo said on March 10 that Norway's decision to suspend the sale showed anti-Russian sentiment and was of serious concern. The Russian embassy was not immediately available for comment on Tuesday.
The Russian foreign ministry did not immediately respond to requests for comment.
Norwegian opposition parties criticized the government for being slow to respond to what they said was a national security threat, after it emerged that Rolls-Royce had informed authorities of a potential Russian deal late last year.
"The government failed to comprehend the severity," Christian Tybring-Gjedde, a lawmaker from the right-wing opposition Progress Party, said.
The case will be the subject of a special hearing in parliament, said Jette Christensen, a lawmaker from the opposition Labor Party.
Bergen Engines makes medium-speed gas and diesel engines for marine and power generation customers. It had revenue of 239 million pounds in 2019.
Norway introduced a new security law that year which strengthens the government's ability to impose conditions or block foreign acquisitions when national interests are at stake.
While corporate takeovers have been assessed from time to time, Norway had abstained from blocking any business transactions since the law came in, the government's NSM security agency said this month.