U.K. might nationalize Rolls-Royce sub unit
LONDON • Britain would consider nationalizing RollsRoyce Holding PLC’s business that makes the power systems used in the country’s nuclear submarines if the company’s difficulties worsen, the Financial Times reported. The government could also decide to merge some or all of RollsRoyce’s businesses with Britain’s biggest defence company, BAE Systems, the FT said.
Rolls-Royce has been subject to takeover speculation after its share price fell 30 per cent over the last year following a series of profit warnings related to a slowdown in its marine engine division and problems in the part of its aero-engine business that services older planes.
The British government holds a “golden share” in RollsRoyce, which means certain deals need its consent, while foreign ownership of RollsRoyce is limited to 15 per cent as part of rules drawn up when it was privatized in 1987.
But the contingency plans reported by the FT suggested the government is uneasy about the situation at Rolls-Royce, which plays an important role in the country’s defence program.
The FT said officials at Prime Minister David Cameron’s office were concerned that RollsRoyce’s management had no substantial experience of defending itself in the event of a hostile takeover bid.
Rolls-Royce said on Monday it was business as usual as far as its relationship with the government was concerned.
“We are in contact with the government as a matter of routine and regularly keep them updated on our performance and progress,” a spokesman said.
A spokeswoman for the prime minister said she did not want to speculate on the company’s future, but noted the FTSE 100 company’s importance to Britain.
“Rolls Royce is a major contributor to our economy, it is an important supplier of equipment to the government and we will continue to work closely with them,” she said.
BAE declined to comment on the FT story, saying it did not comment on rumour or speculation.
Rolls-Royce, alongside BAE Systems, is a major contractor on a plan to replace Britain’s aging fleet of four submarines which carry the country’s Trident nuclear deterrent. Known as the Trident Successor project, it has an estimated cost of 31 billion pounds ($64 billion), making it one of the government’s largest investments.
In the event that a potential bidder presented a plan to improve the performance of Rolls- Royce, investors could pressure the government over the foreign ownership rules, the FT said.
The company, the secondlargest maker of aero-engines globally, is seen as a potential acquisition target for U.S. aeroengine maker Pratt & Whitney and Germany’s Siemens.
Standard Life’s head of U.K. equities told BBC Radio on Monday that the UK government plan was “interesting” but it did not mean the situation at Rolls-Royce had changed.
“I don’t think this is a signal that Rolls-Royce is in trouble. Rolls- Royce will recover over time. It’s a good company with good long-term prospects but going through difficult shortterm trading,” he said.
Jefferies analyst Sandy Morris said the government’s focus on Trident Successor was not surprising.
“I think the government being totally on top of Trident, and how they’re going to manage it and the supply chain, is only sensible,” he said.
Rolls-Royce chief executive Warren East, at the helm since July, ruled out any plans to sell big chunks of the business in November.