Rolls-Royce shares have climbed today after the company announced it was selling its German diesel parts maker L’Orange to US-based engineering company Woodward for £610 million.

Shares on the FTSE 100 blue-chip index climbed 2.2% following the announcement before slightly falling back.

Rolls-Royce shares
Source: Google Finance

The decision forms part of Rolls-Royce’s plans to streamline its business, as demand for diesel falls.

Speculation that Rolls-Royce might sell the business began three months ago when it said it was “reviewing strategic options” for L’Orange after a string of profit warnings.

The deal, expected to close by the end of the second quarter of 2018, marks Roll-Royce’s biggest divestment since chief executive Warren East took over in 2015.

East said that shedding L’Orange — a subsidiary of Rolls-Royce’s power system’s arm — would help “improve the resilience” of the balance sheet and shore up extra capital “to pursue opportunities that will drive greater returns”.

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By GlobalData

This transaction builds on the actions we have taken over the last two years to simplify our business.

The divestiture of L’Orange enables Rolls-Royce power systems to focus on other long-term, high growth opportunities and our company to allocate our capital to core technologies and businesses that drive greater returns for the group.

CEO of Rolls-Royce power systems, Andreas Schell, said that L’Orange would continue to supply Rolls-Royce under a 15-year agreement:

Rolls-Royce Power Systems will remain a key customer of Woodward L’Orange.

Rolls-Royce, which makes engines for the aircraft, ships, trains and heavy-duty trucks, also plans to shed its loss-making commercial marine business after carrying out a review of the unit, it was reported by Reuters.

L’Orange has approximately 1,000 employees in Germany, the US and China, with the majority based at the company headquarters Stuttgart.