LONDON — Nationalizing Rolls-Royce's nuclear submarine power plant manufacturing operations is among the options being considered by the British government if financial problems at the British-based company spark a possible takeover, according to a media report Monday.Dec 14.
Another option would see all, or part, of Rolls-Royce being merged with BAE Systems, the Financial Times said.
The newspaper said the government has drawn up plans to ensure UK interests are protected in the event of a move to take over the company.
A series of profit warnings and a plummeting share price in recent months caused by weakness in its civil aerospace and marine businesses have raised concerns that the British engineering company could be subject to a foreign takeover bid.
The government has the power to block a takeover through a golden share it holds in Rolls-Royce. Foreign ownership is also limited to 15 percent under rules put in place when the company was privatized in 1987.
Howard Wheeldon, of consultants Wheeldon Strategic, said he doubted the nationalization option would get off the ground.
"To suggest that nationalization is even a thought process in the minds of anyone let alone that it may become a possible issue is irresponsible in the extreme. Yes, Rolls-Royce may have a US shareholder breathing down its neck and that has been reported as wishing to see parts of the group hived off. I doubt that will occur and I very much hope that it will not," he said.
"As to nationalization, all I can do is to repeat that such notions are as ridiculous as they are unnecessary and hugely damaging," said Wheeldon.
The government didn't respond directly to the report but a spokesperson said, "Rolls-Royce is a major contributor to the UK economy and is an important supplier of defense equipment to the government. We continue to work closely with the company through a range of programs to develop its world-leading technologies and support British innovation."
Aside from its huge aero and marine engine businesses, the company produces the nuclear power plants for all of the Royal Navy's submarine fleet.
This currently includes providing nuclear reactors for the fleet of seven Astute attacks boats now being built by BAE and a planned class of four submarines that will provide Britain's new nuclear deterrent.
The Financial Times also reported there are concerns in the government over the ability of Rolls-Royce and BAE to deliver the four Trident missile boats on time and on budget, a potential problem caused in part by a shortage of nuclear engineers.
Rolls-Royce employs around 1,300 engineers at it's Raynesway, Derby, nuclear reactor fabrication plant.
The company is in the early stages of a £500 million contract with the government to refurbish the Raynesway site to enable it to build the new PWR3 reactor destined to be fitted to the Successor submarines.
The Strategic Defence and Security Review published by the government in November pushed back the date for the operation of the first of the Successor-class boats from 2028 to the early 2030s and said the price had risen from £25 billion to £31 billion. A further £10 billion is being put aside as a contingency.
A new government delivery body is being set up to handle the program. Final approval for Successor is expected in 2016.
Andrew Chuter is the United Kingdom correspondent for Defense News.