* German firm becomes largest shareholder
* HEPS slump to 27 cents
* Oil & Gas division weighs on profit
* Expects difficult trading conditions (Adds results, CEO comment, updates share price)
By Tanisha Heiberg and Nqobile Dludla
JOHANNESBURG, Feb 22 (Reuters) - Germany's ATM Holding has bought a 25 percent shareholding in engineering and construction group Murray and Roberts (M&R), the South African firm said on Wednesday before posting a 70 percent drop in profit.
ATM, which is now the largest shareholder, is owned by private investment holding company ATON GmbH, which invests in the mining, engineering, aviation and health technology sectors, M&R said.
M&R said it will engage with ATON regarding its intentions.
"We don't know what their intentions are at this stage - all we know is that they own 25 percent of the company," M&R head of investment Ed Jardim told Reuters.
ATON held discussions between September 2015 and April 2016 with M&R regarding a potential merger of its mining contracting subsidiary, J.S. Redpath Holding, with M&R's underground mining business, but an agreement could not be reached on the deal's structure and value.
ATON acquired 4.49 percent of M&R in 2015 and now holds about 25.5 percent of M&R's total ordinary share capital.
Coronation Fund Managers sold its 15 percent stake last week and major shareholders Allan Gray and Sanlam Investment Management reduced their interest on Tuesday.
Shares in M&R inched down 0.20 percent to 14.98 rand after the firm said diluted continuing headline earnings per share for the six months ended December 2016 slumped to 27 cents from 93 cents in 2015 due to underperformance in its Oil & Gas division.
The company, which sold its infrastructure business in 2016, said revenue from its oil & gas division declined to 3 billion rand ($228 million) from 6.1 billion rand following the significant drop in oil prices in 2014 and expenditure cut backs from oil clients.
"Murray & Roberts is largely exposed to the cyclical global natural resources sector which has still not recovered from a period of prolonged weakness. This is reflected in the financial results recorded for the period under review," group chief executive Henry Laas said.
The order book from continuing operations decreased to 24.5 billion rand, while group revenue fell 18 percent to 10.7 billion rand.
M&R, which is transforming itself into an international engineering group, said results were also affected by a settlement with the South African government.
Murray and Roberts was one of seven construction companies which agreed in October to contribute a total of 1.5 billion rand over the next 12 years towards a fund to develop skills in the sector after antitrust authorities imposed penalties in 2013 for collusion in tendering processes .
$1 = 13.1050 rand Editing by Louise Heavens and Elaine Hardcastle